Marcos Company reported the following items on its financial statements for the year ending December 31, 2016: ? $\begin{array} { l r l r } \text { Sales } & \$ 560,000 & \text { Cost of goods sold } & \$ 400,000 \\\text { Salary expense } & 40,000 & \text { Interest expense } & 30,000 \\\text { Dividends } & 20,000 & \text { Income tax expense } & 25,000\end{array}$ ?
How much will be reported as retained earnings on Marcos' balance sheet at December 31, 2016, if this is the first year of operations?

Question

Marcos Company reported the following items on its financial statements for the year ending December 31, 2016: ?

\begin{array} { l r l r } \text { Sales } & \$ 560,000 & \text { Cost of goods sold } & \$ 400,000 \\\text { Salary expense } & 40,000 & \text { Interest expense } & 30,000 \\\text { Dividends } & 20,000 & \text { Income tax expense } & 25,000\end{array}

?
How much will be reported as retained earnings on Marcos' balance sheet at December 31, 2016, if this is the first year of operations?

Quizplus · Accepted Answer

To calculate retained earnings for the first year of operations, we start with net income and subtract any dividends paid. Net income is calculated as Sales - Cost of Goods Sold - Salary Expense - Interest Expense - Income Tax Expense = $560,000 - $400,000 - $40,000 - $30,000 - $25,000 = $65,000. Then, subtract dividends of $20,000 from the net income of $65,000 to get retained earnings of $45,000.

Marcos Company Reported the Following Items on Its Financial Statements