brandy3806
Jul 9, 2012, 12:43 PM
The cash balance was 4,000, and Notes Payable amounted to 2,000. The compnay had revenues of 6,000 and expenses of 3,500. The company;s Land account had a 9,000 balance. Dividends amounted to 500. There was 6,000 of common stock issued.
a)Assuming that the beginning balance in the Retained Earnings account was 2,600, determind its balance after the nominal accounts were closed.
b)What is the net income to be reported?

Can someone please help me with the formula to use and work the problem I seem to be getting the answer wrong when I try to work it.

Jul 9, 2012, 03:25 PM
The first formula you need is: Assets = Liabilities + Owners Equity

Owners Equity = Owners Investments(common stock) + Retained Earnings

So your Assets are Cash and Land.

Libilities are Notes Payable.

Owners Equity is Common Stock and Retained Earnings

You have everything you need to calculate Retained Earnings

Retained Earnings = Assets - Liabilities - Common Stock

For B you need to compute Net Income. So: Net Income = Revenues - Expenses

There seems to be a mistake in the numbers that are provided or some information is missing because the Retained Earnings amount will not be the same if calculated a different way. The other way to calculate Retained Earnings is: Ending Retained Earnings = Beginning Retained Earnings + Net Income - Dividends

paraclete
Jul 9, 2012, 03:26 PM
The cash balance was 4,000, and Notes Payable amounted to 2,000. The compnay had revenues of 6,000 and expenses of 3,500. The company;s Land account had a 9,000 balance. Dividends amounted to 500. There was 6,000 of common stock issued.
a)Assuming that the beginning balance in the Retained Earnings account was 2,600, determind its balance after the nominal accounts were closed.
b)What is the net income to be reported?

Can someone please help me with the formula to use and work the problem I seem to be getting the answer wrong when I try to work it.

Sales - expenses = net earnings
opening balance + net earnings for the year - dividends paid = closing balance