Question

Company X had a net income of $25,000 for the year ended December 31, 2016. In 2016, Company X paid the out dividends of $10,000. At the end of 2016, Company X had a retained earnings balance of $60,000. What was Company X’s retained earnings balance at the beginning of the year? a. $45,000 b. $75,000 c. $35,000 d. $70,000

Answer 1

Answer:

a. $45,000

Explanation:

The retained earnings of the Company X at the beginning of the year shall be determined using the following mentioned formula:

Retained Earnings at the end of year=Retained Earnings at the start of the year+net income for the year-dividend paid by company X

In the given question:

Retained Earnings at the end of year=$60,000

Retained Earnings at the start of the year=?

Net income for the year=$25,000

Dividends paid by Company X=$10,000

$60,000=Retained Earnings at the start of the year+$25,000-$10,000

Retained Earnings at the start of the year=$60,000-$25,000+$10,000

                                                                    =$45,000

So based on the above calculation, the answer is a. $45,000