Question

Las Palmas Company reported the following items on its financial statements for the year ending December 31, 2017: Sales $ 560,000 Cost of goods sold $400,000 Salary expense 40,000 Interest expense 30,000 Dividends 30,000 Income tax expense 25,000 How much will be reported as retained earnings on Las Palmas' balance sheet at December 31, 2017, if this is the first year of operations?

Answer 1

Answer

Income Statement
Sales	560,000
Cost of Goods sold	400,000
Gross Profit	160,000
Salary Expense	40,000
Interest expense	30,000
Income before tax	90,000
Tax	25,000
Income after tax	65,000
Dividend	30,000
Transfer to Retained Earnings	35,000

As this is company’s first year of operations, company will not have any opening or closing balance in Retained Earnings.

So Closing Retained Earnings = Net Income (After tax) – Dividend payment

= 65,000 – 30,000

Closing Retained Earnings = 35,000

Retained earnings on Las Palmas' balance sheet at December 31, 2017 = $35,000