Question

Eastern Enterprises started the year with the following: Assets $119,000; Liabilities $41,000; Common Stock $71,000; Retained Earnings $7,000. During the year, the company earned revenue of $6,300, all of which was received in cash, and incurred expenses of $3,650, all of which were unpaid as of the end of the year. In addition, the company paid dividends of $2,300 to owners. Assume no other activities occurred during the year.

The amount of Eastern's retained earnings at the end of the year is:

Answer 1

When the profit made during the year after distributing the dividends is added to opening balance of retained earnings, the closing balance of retained earnings is derived.

Retained earnings are those earnings which are undistributed to shareholders. The purpose of doing so is to invest it for the growth of the company. Retained earnings for the year are figures of profit after paying dividends to the investors.

Sales	$ 6,300
Less: Costs	3,650
Net income	2,650
Less: Dividend paid	2,300
Addition to retained earnings during the year	350
Add: Opening balance of retained earnings	7,000
Retained Earnings at the end of year	$ 7,350

Hence, Eastern's retained earnings at the end of year is $ 7,350.