On January 1, 20X1, two individuals invested $150,000 each to form Hornbeck Corporation. Hornbeck had total revenues of $15,000 during 20X1 and $40,000 during 20X2. Total expenses for the same periods were $8,000 and $22,000, respectively. Cash dividends paid out to shareholders totaled $6,000 in 20X1 and $12,000 in 20X2. What was the ending balance in Hornbeck's retained earnings account at the end of 20X1 and 20X2?

Question

Quizplus · Accepted Answer

To calculate the ending balance in Hornbeck's retained earnings at the end of each year, we start with the net income for each year (revenues minus expenses) and then subtract dividends paid. For 20X1: Net income = $15,000 - $8,000 = $7,000. After paying $6,000 in dividends, retained earnings at the end of 20X1 = $7,000 - $6,000 = $1,000. For 20X2: Net income = $40,000 - $22,000 = $18,000. Adding the previous year's retained earnings ($1,000) gives $19,000 before dividends. After paying $12,000 in dividends, retained earnings at the end of 20X2 = $19,000 - $12,000 = $7,000.

On January 1, 20X1, Two Individuals Invested $150,000 Each to Form