The following pre-closing accounts and balances were drawn from the records of Carolina Company on December 31, Year 2: $$\begin{array} { l lll}
\text { Cash } & \$ 4,000& \text { Accounts receivable } & \$3,400\
\text { Dividends} &2,000& \text { common stock } &3,900 \
\text { Land } &3,200 &\text { Revenue } &3,200 \
\text { Accounts payable } & 1,800 &\text { Expense } & 2,200
\end{array}$$

What is the amount of retained earnings that will be shown on the balance sheet at December 31, Year 2?
A) $5,900
B) $7,200
C) $3,900
D) $4,900

Question

The following pre-closing accounts and balances were drawn from the records of Carolina Company on December 31, Year 2: $$\begin{array} { l lll} 
\text { Cash } & \$ 4,000& \text { Accounts receivable } & \$3,400\
\text { Dividends} &2,000& \text { common stock } &3,900 \
\text { Land } &3,200 &\text { Revenue } &3,200 \
\text { Accounts payable } & 1,800 &\text { Expense } & 2,200
\end{array}$$

What is the amount of retained earnings that will be shown on the balance sheet at December 31, Year 2?
A) $5,900
B) $7,200
C) $3,900
D) $4,900

Quizplus · Accepted Answer

Retained earnings are calculated as beginning retained earnings plus net income minus dividends. Assuming beginning retained earnings are $0, net income is revenue ($3,200) minus expenses ($2,200), which equals $1,000. Subtracting dividends ($2,000) from net income gives retained earnings of $4,900.

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