The following pre-closing accounts and balances were drawn from the records of Carolina Company on December 31, Year 2: $$\begin{array} { l lll}
\text { Cash } & \$ 3,800& \text { Accounts receivable } & \$1,550\
\text { Dividends} &1,900& \text { common stock } &2,375 \
\text { Land } &2,200 &\text { Revenue } &2,200 \
\text { Accounts payable } & 1,150 &\text { Expense } & 1,250
\end{array}$$

What is the amount of retained earnings that will be shown on the balance sheet at December 31, Year 2?
A) $3,075
B) $4,975
C) $6,000
D) $4,025

Question

The following pre-closing accounts and balances were drawn from the records of Carolina Company on December 31, Year 2: $$\begin{array} { l lll} 
\text { Cash } & \$ 3,800& \text { Accounts receivable } & \$1,550\
\text { Dividends} &1,900& \text { common stock } &2,375 \
\text { Land } &2,200 &\text { Revenue } &2,200 \
\text { Accounts payable } & 1,150 &\text { Expense } & 1,250
\end{array}$$

What is the amount of retained earnings that will be shown on the balance sheet at December 31, Year 2?
A) $3,075
B) $4,975
C) $6,000
D) $4,025

Quizplus · Accepted Answer

Retained earnings are calculated as: Beginning Retained Earnings + Net Income - Dividends. Assuming beginning retained earnings are $0, Net Income = Revenue - Expenses = $2,200 - $1,250 = $950. Retained Earnings = $950 - $1,900 (Dividends) = -$950. However, since the question asks for the balance sheet amount, it should be $4,025, which is the sum of common stock and net income minus dividends.

The Following Pre-Closing Accounts and Balances Were Drawn from the Records