Question

Madrid Company has provided the following data (ignore income taxes): 2018 revenues were $77,500. 2018 net income was $33,900. Dividends declared and paid during 2018 totaled $5,700. Total assets at December 31, 2018 were $217,000. Total stockholders' equity at December 31, 2018 was $123,000. Retained earnings at December 31, 2018 were $83,000. Which of the following is correct? A) Total liabilities at December 31, 2018 were $11,000. B) Common stock at December 31, 2018 was $206,000. C) Retained earnings increased $28,200 during 2018.

Answer 1

Answer:

C. Retained earnings increased $28,200 during 2018.

Explanation:

Total liabilities = Total assets - Total equities

= $217,000 - $123,000

= $94,000

Common stock as at December 31, 2018 = Total equity - Total retained earnings

= $123,000 - $83,000

= $40,000

Retained earnings at year end =

Opening retained earnings + net income - dividend paid

$83,000 = Opening retained earnings + $33,900 - $5,700

$83,000 = Opening retained earnings + $28,200

Opening retained earnings = $54,800

Change in retained earnings = Closing retained earnings - Opening retainer earnings

= $83,000 - $54,800

= $28,200

Therefore, Option 'C' is the correct option.