If a company that was started this month has net income of $30,000, dividends of $4,000, and liabilities of $20,000, how much is ending retained earnings for the month?

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Business

Denisse

13 January, 07:22

If a company that was started this month has net income of $30,000, dividends of $4,000, and liabilities of $20,000, how much is ending retained earnings for the month?

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Tyrone Cervantes · Answer 1

Answer: $26,000

Explanation: Retained earnings could be defined as that portion of a company's earnings that hasn't been distributed to shareholders as dividends. It is reserved as working capital, clear outstanding liabilities and general running of the business.

Retained Earning is calculated using the formula:

Retained Earning (RE) = beginning retained earning + Net income - dividend

Since the company just started (1st month), there was no previous retained earning.

Therefore,

RE = Net income - dividend

RE = $30,000 - $4,000 = $26,000