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17 July, 05:57

If a company that was started this month has net income of $30,000, dividends of $4,000, and liabilities of $20,000, how much is ending retained earnings for the month?

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  1. 17 July, 06:19
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    Answer: $26,000

    Explanation: Retained earnings could be defined as that portion of a company's earnings that hasn't been distributed to shareholders as dividends. It is reserved as working capital, clear outstanding liabilities and general running of the business.

    Retained Earning is calculated using the formula:

    Retained Earning (RE) = beginning retained earning + Net income - dividend

    Since the company just started (1st month), there was no previous retained earning.

    Therefore,

    RE = Net income - dividend

    RE = $30,000 - $4,000 = $26,000
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