Question

Packard Company engaged in the following transactions during Year 1, its first year of operations. (Assume all transactions are cash transactions.) 1) Acquired $1,300 cash from the issue of common stock. 2) Borrowed $770 from a bank. 3) Earned $950 of revenues cash. 4) Paid expenses of $320. 5) Paid a $120 dividend. During Year 2, Packard engaged in the following transactions. (Assume all transactions are cash transactions.) 1) Issued an additional $675 of common stock. 2) Repaid $465 of its debt to the bank. 3) Earned revenues of $1,100 cash. 4) Incurred expenses of $500. 5) Paid dividends of $170. What is Packard's retained earnings account balance at the end of Year 1 before the process of closing the accounts has been undertaken?

Answer 1

Answer:

Packard's retained earnings account balance at the end of Year 1 = $ (1,300 + $ 770 + $ 950) -  $ 320 - $ 120

= $ 3020 - ( $ 320 + $ 120)

= $ 2580

Explanation:

All the inflow items are below -

(1) Acquired $1,300 cash from the issue of common stock.

(2) Borrowed $770 from a bank.

(3)  Earned $950 of revenues cash.

All the outflow items are below -

(1) Paid expenses of $320.

(2)  Paid a $120 dividend.

Hence, Packard's retained earnings account balance at the end of Year 1 is the sum of all the inflow items minus the sum of all the outflow items as shown in the answer.