Question

On December 31, 2016, the balance in retained earnings is $20,000. On December 31, 2017, the...

On December 31, 2016, the balance in retained earnings is $20,000. On December 31, 2017, the balance in retained earnings is $19,100. During 2017, dividends of $4,000 were declared and paid. What is the amount of net income for 2017?
a) 900
b) 4900
c) 3100
d) (900)

C? 19,100 + 4000 - 20,000 = 3100 ?

Homework Answers

Answer #1

ANSWER Option C is Correct. It is As explained below

Retained Earnings are the "net income that is retained by the organisation at the end of reporting period for the future use"

so in the question the retained earnings of 2016 are $20000 which is carry forwarded to next year that is 2017 and balance in the retained earnings of 2017 are $19100. so we can say that the difference between the reatined earnings of both the years will be net income of 2017

Net Income = retained earnings 2017 - retained earnings 2016

= $ 19100 - $ 20000

= $ (900)

Now we also know that in 2017 company also declared and paid dividend of $4000 which is an expense of the company so therefore added back to the net income calculated above to reach at the actual net income of 2017 that is

Net Income = $ (900) + $ 4000

= $3100

So $3100 is the answer

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