Ningbo Steel had year end 2011 and 2012 retained earnings balances of $5,000,000 and $6,000,000 respectively. The firm paid $100,000 of dividends in 2012. Based on this information, Ningbo Steel's net profit after taxes in 2012 was:

Question

Quizplus · Accepted Answer

The change in retained earnings from 2011 to 2012 is: 
$6,000,000 - $5,000,000 = $1,000,000

This change in retained earnings can be broken down into two parts: 
1. Net profit after taxes 
2. Dividends paid

Therefore, we can set up the following equation: 
Change in Retained Earnings = Net Profit after Taxes - Dividends Paid

Plugging in the given values, we get: 
$1,000,000 = Net Profit after Taxes - $100,000

Solving for net profit after taxes, we get: 
Net Profit after Taxes = $1,000,000 + $100,000 = $1,100,000

Therefore, choice D is the correct answer.

Ningbo Steel Had Year End 2011 and 2012 Retained Earnings