Question

ABC had a net income of $8,000, $5,000, $12,000, and $10,000 over the first four years of the company's existence. If the average annual amount of dividends paid over the last four years is $3,000, what is the ending retained earnings balance?

Answer 1

Answer:

$23000.

Explanation:

Given:

ABC had a net income of $8,000, $5,000, $12,000, and $10,000 over the first four years of the company's existence.

The average annual amount of dividends paid over the last four years is $3,000.

Question asked:

What is the ending retained earnings balance?

Solution:

First of all we will calculate total dividends paid during four years:-

Average annual amount of dividends = $3,000

Total number of years = 4

As we know:

$Average =\frac{Sum \ of\ observations}{Number\ of\ observation}$

$3000=\frac{Sum\ of\ observations}{4}$

Multiplying both sides by 4

 $3000\times4=\frac{Sum\ of\ observations}{4} \times4\\ \\ 12000=Sum\ of\ observations$

That means, ABC paid $12,000 dividends over the last four years.

Now, Net income = 8000 + 5000 + 12000 + 10000 = $35000

Ending retained earnings balance = Net income - Dividend paid

                                                         = $35000 - $12,000

                                                         = $23000

Therefore, the ending retained earnings balance of ABC is $23000.