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Sanchez Company engaged in the following transactions during Year 1:

1) Started the business by issuing $42,000 of common stock for cash.
2) The company paid cash to purchase $26,400 of inventory.
3) The company sold inventory that cost $16,000 for $30,600 cash.
4) Operating expenses incurred and paid during the year, $14,000.

Sanchez Company engaged in the following transactions during Year 2:

1) The company paid cash to purchase $35,200 of inventory.
2) The company sold inventory that cost $32,800 for $57,000 cash.
3) Operating expenses incurred and paid during the year, $18,000.

Note: Sanchez uses the perpetual inventory system.

-What is the amount of retained earnings that will be shown on the balance sheet at December 31,Year 2?

Question

[The following information applies to the questions displayed below.]
 
Sanchez Company engaged in the following transactions during Year 1:

1) Started the business by issuing $42,000 of common stock for cash. 
2) The company paid cash to purchase $26,400 of inventory. 
3) The company sold inventory that cost $16,000 for $30,600 cash. 
4) Operating expenses incurred and paid during the year, $14,000. 
 
Sanchez Company engaged in the following transactions during Year 2:

1) The company paid cash to purchase $35,200 of inventory. 
2) The company sold inventory that cost $32,800 for $57,000 cash. 
3) Operating expenses incurred and paid during the year, $18,000.

Note: Sanchez uses the perpetual inventory system.

-What is the amount of retained earnings that will be shown on the balance sheet at December 31,Year 2?

Quizplus · Accepted Answer

Net income = Sales - Cost of goods sold ? Operating expenses +/- Nonoperating items (which are zero here)
Year 1 Net income = $30,600 - $16,000 - $14,000 = $600
Year 2 Net income = $57,000 - $32,800 - $18,000 = $6,200
Retained earnings at end of Year 2 = Retained earnings at beginning of Year 1 + Net income for Years 1 and 2 - Dividends (which are zero here)
Retained earnings at end of Year 2 = $0 + $600 + $6,200 = $6,800

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