Nelson Company experienced the following transactions during Year 1, its first year in operation.Issued $9,600 of common stock to stockholdersProvided $5,900 of services on accountPaid $2,500 cash for operating expensesCollected $3,700 of cash from accounts receivablePaid a $280 cash dividend to stockholdersWhat is the amount of retained earnings that will be shown on the company's balance sheet prepared as of December 31, Year 1?
A) $2,480
B) $3,400
C) $3,120
D) $12,720

Question

Quizplus · Accepted Answer

The retained earnings formula is: Beginning retained earnings + Net income - dividends = Ending retained earnings.

Beginning retained earnings for this company would be $0 since it is the first year of operation.

Net income is calculated as revenue - expenses. Revenue for the year was $5,900 and expenses were $2,500, so net income is $3,400.

Dividends paid were $280.

So, the calculation for ending retained earnings is: 
$0 (beginning retained earnings) + $3,400 (net income) - $280 (dividends) = $3,120

Therefore, the answer is (C) $3,120.

Nelson Company Experienced the Following Transactions During Year 1, Its