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7. Sitdown Inc. manufactures Chairs. The firm started 2020 with a retained earnings balance of $160,000....

7. Sitdown Inc. manufactures Chairs. The firm started 2020 with a retained earnings balance of $160,000. During 2020 the following occurred:   Net income for the year $40,000, sales of the firm’s common stock $22,000, the repurchase of common stock $4,000, common stock dividends $3,000. What is the ending balance in the retained earnings account.    ______________________

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Answer #1

Ending balance of retained earnings = Opening balance of retained earnings + Net Income - Stock Dividend paid

Opening balance of retained earnings = $160,000

Net Income = $40,000

Stock Dividend paid = $3,000

Ending balance of retained earnings = $160,000 + $40,000 - $3,000

= $197,000

  • Sale of common stock will have no impact on the retained earnings. It will increase the shareholder's equity and make no impact on retained earnings.
  • Stock repurchase will also have no impact on the retained earnings as it will increase the treasury stock in the balance sheet and reduce cash from the asset side of the balance sheet. Thus it will not have any impact on the retained earnings.
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