Use the following information to answer questions
Packard Company engaged in the following transactions during 2015,its first year in operations: (Assume all transactions are cash transactions. )
1)Acquired $950 cash from the issue of common stock.
2)Borrowed $420 from a bank.
3)Earned $650 of revenues.
4)Paid expenses of $250.
5)Paid a $50 dividend.
During 2016,Packard engaged in the following transactions: (Assume all transactions are cash transactions. )
1)Issued an additional $325 of common stock.
2)Repaid $220 of its debt to the bank.
3)Earned revenues of $750.
4)Incurred expenses of $360.
5)Paid dividends of $100.
-The amount of retained earnings on Packard's 2016 balance sheet is
A)$640.
B)$800.
C)$290.
D)$740.

Question

Quizplus · Accepted Answer

Retained earnings are calculated as the cumulative net income minus dividends. For 2015, net income is $650 (revenues) - $250 (expenses) = $400. Dividends paid in 2015 are $50, so retained earnings at the end of 2015 are $400 - $50 = $350. For 2016, net income is $750 (revenues) - $360 (expenses) = $390. Dividends paid in 2016 are $100, so retained earnings for 2016 are $350 (beginning retained earnings) + $390 (net income) - $100 (dividends) = $640.

Use the Following Information to Answer Questions