Question

Summer Forever Company engaged in the following transactions during 2015: 1) Started the business by issuing...

Summer Forever Company engaged in the following transactions during 2015:

1) Started the business by issuing $42,000 of common stock for cash. 2) The company paid cash to purchase $26,400 of inventory. 3) The company sold inventory that cost $16,000 for $30,600 cash. 4) Operating expenses incurred and paid during the year, $14,000.

Summer Forever Company engaged in the following transactions during 2016: 1) The company paid cash to purchase $35,200 of inventory. 2) The company sold inventory that cost $32,800 for $57,000 cash. 3) Operating expenses incurred and paid during the year, $18,000. Note: Summer uses the perpetual inventory system.

The amount of Summer Forever's retained earnings at December 31, 2016 is:

A. $6,200

B. $26,000

C. $6,800.

D. $38,800.

Business   Accounting   
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Answer #1

Net Income for 2015 =Revenue -expense

   = 30600-16000-14000

   = 600

Retained earning at end of 2015 = 0beginning balance+ 600 net income -0 dividend paid = 600

Net income for 2016 = 57000-32800-18000

            = 6200

retained earnings at December 31, 2016 = 600 beginning balance + 6200 net income -0 dividend

             = 6800

correct option is "C" -6800

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