Willie Company's retained earnings increased $20,000 during 2016. What was Willie's 2016 net income or loss given that Willie declared $25,000 of dividends during 2016?

Question

Quizplus · Accepted Answer

The formula for calculating retained earnings is: Beginning retained earnings + net income - dividends = ending retained earnings. We know that ending retained earnings increased by $20,000 and that $25,000 of dividends were declared, so we can set up the equation as follows: Beginning retained earnings + net income - $25,000 = Beginning retained earnings + $20,000. Simplifying, we get: net income - $25,000 = $20,000. Solving for net income, we get: net income = $45,000. Therefore, the correct answer is B.

Willie Company's Retained Earnings Increased $20,000 During 2016