The following accounts and balances were drawn from the records of Carolina Company on December 31, 2016:

Cash $ 4,000

Accounts receivable $ 3,400

Dividends 2,000

Common stock 3,900

Land 3,200

Revenue 3,200

Accounts payable 1,800

Expense 2,200

The amount of Carolina's retained earnings after closing on December 31, 2016 was:

a. $5,900.

b. $7,200.

c. $3,900.

d. $4,900.

c. $3,900

Explanation:

Net Income is calculated first because it is to be included in the calculation of Retained Earnings.

Net Income for the year is $1,000

The formula to calculate the Net Income is as follows:

Revenue - Expense

$3,200 - $2,200 = $1,000.

The formula to calculate Retained Earnings is as follows:

Total Assets - Total Liabilies + Net Income = Retained Earnings

($4,000 + $3,400 + $3,200) - ($2,000 + $3,900 + $1,800) + $1,000

($10,600) - (7,700) + $1,000 = $3,900.