Question

Use the following information to answer questions 1 - 13 As of December 31, 2014 assets were $20, liabilities were $12 and paid-in-capital was $1. There was no treasury stock or accumulated other comprehensive income at either the beginning or ending of 2015. During the year revenues were $40, gains (net of losses) were $1, paid-in-capital increased by $2 and the company paid out dividends of $4. At the end of the year, equity was $22 and total liabilities were $20.

4) How much retained earnings was there at December 31, 2015?

6) How much net income was earned during the year ended 12/31/15?

7) How much were expenses during the year ended 12/31/15?

Answer 1

4) Retained earnings in 2015

Total Equity in 2015 = 22

Paid in capital in 2015 = 1+2 = 3

Total Equity = Retained earnings + paid in capital

Retained earnings in 2015 = 22 - 3 = 19

2) Net Income

Dividends in 2015 = 4

Retained earnings in 2014 = 7

Retained earnings in 2015 = 19

Increase in retained earnings - 19 -7 = 12

This is the amount which gets accumulated in retained earnings

Also retained earnings accumulated = Net income - dividends

So Net income = 12 + 4 = 16

3 Expenses

Sales = 40

Net Profit = 16

So expenses = 24