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stoppre16
Jan 30, 2011, 05:54 PM
Hello, I need to calculate the retained earnings from the following information and I'm not sure how to do it.

Inventory $6,659
Common stock 46,547
Cash 14,628
Operating expenses 1,379
Short-term notes payable 611
Interest expense 1,379
Depreciation expense 498
Net sales 11,816
Accounts receivable 9,649
Accounts payable 4,824
Long-term Debt 55,653
Cost of goods sold 5,579
Buildings and equipment 123,204
Accumulated depreciation 34,656
Taxes 1,578
General and administrative expense 846
Retained earnings?


The correct answer is $11849 but I need to know how to come up with this number. I've tried many different combinations but so far nothing has worked so I was hoping for a little help. I've looked for formulas for calculating retained earnings but the most explicit I could find was
RE = Net Income - Dividends Paid. Any help is much appreciated. Thanks

rehmanvohra
Jan 31, 2011, 04:34 AM
It would have been better if you had posted your answer. However, all you need to do is prepare a trial balance based on given figures. The debits will be more than credits and that should match with the answer. Just do it and post it.

pready
Jan 31, 2011, 09:28 AM
It appears one or more of the amounts you have listed is incorrect, an amount is missing, or the check figure that you were given could be wrong. I have seen that the check figures given in accounting textbooks are sometimes incorrect.

I did a worksheet format for the debits and credits, which totaled 165,339 for your debits and credits, which makes your retained earnings = 11,292 which makes something incorrect in the information provided. Also in your post you state that retained earnings = net income - dividends paid, but you do not have any dividends listed in your account figures.

See my attached worksheet!

stoppre16
Jan 31, 2011, 12:02 PM
Sorry, it looks like I put in the wrong number for interest expense. Pready, can you tell me which figures you used to calculate the debits and credits? I've put all the numbers into a spreadsheet and tried numerous combinations but I can't quite get it right. Am I just summing all of the amounts listed (adding assets and subtracting liabilities) or are there certain quantities that I don't need to include? I'm pretty new to the intricacies of accounting so if you don't mind being specific I'd appreciate it.

I am currently finishing my masters in applied mathematics right now and decided to take a business finance class this semester since I'm thinking about actuarial work when I complete my degree. Unfortunately my text does not cover this topic in any depth and in my internet searches I've only found extremely general formulas like the one I included in my original post that are of little help for this specific problem.

Thanks again for your help

pready
Jan 31, 2011, 03:49 PM
Here is a basic formula to determine which account has a normal debit or credit balance:

D Debits
E Expenses
A Assets
D Dividends

C Credits
U Unearned Revenues
R Revenues
L Liabilities
S Shareholders or Owners Equity.

Accumulated Depreciation is a contra asset, which means it will have a normal credit balance.

I posted a Spreadsheet that was done in Excel 97-2003 version in my previous post which shows how I did it.

The total of your Debits must Equal your Credits and on your credit side you are missing one amount so you subtract from your total Debits your total Credits to get your Retained Earnings.

stoppre16
Jan 31, 2011, 10:42 PM
Ah, I didn't see the attachment in your 1st post, that does help a lot. Unfortunately, even using the formulas you provided the numbers are still not matching up. I simply replaced the numbers in the spreadsheet you posted with some from another example and calculated the totals based on those but the solution for retained earnings is still off the answer that is provided. I'd like to post it but I'm not sure how to attach files.

Thank you very much for your help though.

pready
Feb 1, 2011, 08:01 AM
When yor making a reply, instead of clicking on the Post Quick Answer box you click on Go Advanced, which is below your reply box that you type in.

In the Go Advanced menu you will see the Additional Options area, where you will click on Manage Attachments. In the Manage Attachments screen you will click on the browse button, look for your file to upload where you will double click on your file you are uploading. You should see your file path in the box to the left of the browse button, then you will click the upload button to actually upload your file to your post, then finally you will post your reply.

At the bottom of your post you should see in blue letters; Attached files and the name of the files that are attached to the post. To see the file you click on the file and it should open for you to see.

stoppre16
Feb 3, 2011, 02:08 PM
Sorry, I got distracted for a few days with some other work but I wanted to let you know that I figured it out and got the numbers to work. It was just a matter of excluding some of the amounts. Also, I guess this website isn't all that Mac-friendly; in 3 different browsers I have not been able to post anything except for a quick reply.

Anyway, thanks again for your help.