Multiple Choice
Which of the following is NOT a component of retained earnings?
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12. Stockholders' Equity
Retained Earnings
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Company A started the year with $50,000 in retained earnings. During the year, it earned a net income of $20,000 and paid dividends of $5,000. What is the amount of retained earnings (a component of equity) at the end of the year for Company A?
A
$70,000
B
$65,000
C
$75,000
D
$55,000
Verified step by step guidance1
Start by understanding the formula for calculating retained earnings at the end of the year: Retained Earnings (End) = Retained Earnings (Beginning) + Net Income - Dividends.
Identify the values provided in the problem: Retained Earnings (Beginning) = $50,000, Net Income = $20,000, and Dividends = $5,000.
Substitute the values into the formula: Retained Earnings (End) = $50,000 + $20,000 - $5,000.
Perform the addition first: Add the beginning retained earnings ($50,000) and the net income ($20,000).
Subtract the dividends ($5,000) from the result of the addition to calculate the retained earnings at the end of the year.
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