On jan. 1, 2019, Bacardi Limited had retained earnings of $8,000,000. During 2019, the corporation reported net income of $1,500,000, declared dividends of $500,000, and issued common stock for $1,000,000. What were retained earnings on dec 31, 2019? A. $7,500,000 B. $9,000,000 C. $9,500,000 D. $7,000,000
On jan. 1, 2019, Bacardi Limited had retained earnings of $8,000,000. During 2019, the corporation reported net income of $1,500,000, declared dividends of $500,000, and issued common stock for $1,000,000. What were retained earnings on dec 31, 2019? A. $7,500,000 B. $9,000,000 C. $9,500,000 D. $7,000,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
On jan. 1, 2019, Bacardi Limited had retained earnings of $8,000,000. During 2019, the corporation reported net income of $1,500,000, declared dividends of $500,000, and issued common stock for $1,000,000. What were retained earnings on dec 31, 2019?
A. $7,500,000
B. $9,000,000
C. $9,500,000
D. $7,000,000
Expert Solution
Step 1 Formula to calculate closing retained earnings
Retained earnings are the free reserves that are attributable to the owners of the entity. Profits generated by the entity are transferred to the retained earnings. Any distribution in the form of dividends are made from retained earnings of the entity
Therefore, Closing retained earnings = Opening retained earnings less dividends paid Plus net income generated by the entity during the current period
If the entity made loss in the current year the same is reduced from the retained earnings.
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