Multiple Choice
Retained earnings is decreased by which of the following?
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12. Stockholders' Equity
Retained Earnings
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On January 1, 2018, XYZ Company had a balance of retained earnings of $420,000. During 2018, the company earned net income of $205,000 and also paid dividends. If the balance of retained earnings on December 31, 2018 was $340,000, how much was paid in dividends?
A
$80,000
B
$125,000
C
$205,000
D
$285,000
Verified step by step guidance1
Start by understanding the formula for calculating the ending balance of retained earnings: Ending Retained Earnings = Beginning Retained Earnings + Net Income - Dividends.
Identify the given values: Beginning Retained Earnings = $420,000, Net Income = $205,000, and Ending Retained Earnings = $340,000.
Substitute the known values into the formula: $340,000 = $420,000 + $205,000 - Dividends.
Rearrange the equation to solve for Dividends: Dividends = $420,000 + $205,000 - $340,000.
Calculate the amount of dividends paid by performing the arithmetic operation: Dividends = $285,000.
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