The retained earnings account began the year with a balance of $639,600,was reduced for dividends declared,and increased for net income of $312,000.If the cash paid for dividends was $129,500,and the dividends payable account decreased $45,000,the ending balance in the retained earnings account should be:

Question

Quizplus · Accepted Answer

Beginning retained earnings + net income - dividends declared = ending retained earnings

$639,600 + $312,000 - dividends declared = ending retained earnings

We know that dividends declared can be found by subtracting the decrease in dividends payable from the cash paid for dividends:

dividends declared = cash paid for dividends - decrease in dividends payable
dividends declared = $129,500 - $45,000
dividends declared = $84,500

Substituting this value into the first equation:

$639,600 + $312,000 - $84,500 = ending retained earnings
$867,100 = ending retained earnings

Therefore, the ending balance in the retained earnings account should be $867,100, which is answer choice D.

The Retained Earnings Account Began the Year with a Balance