I need to answer this question: using the retained earnings equation and an opening balance of $0, work backwards to compute the amount of net income for the year ended December 31, 2009. :(

No idea how to do this..





Assets Liabilities and Stockholders' Equity
Cash $47,500.00 Liabilities
Accounts Receivable $26,900.00 Accounts Payable $8,000.00
Property and Equipment $48,000.00 Note Payable $2,850.00
Total Liabilities $10,850.00

Stockholders' Equity
Contributed Capital $98,000.00
Retained Earnings $13,550.00
Total Stockholders'Equity 111,550.00

Total Assets $122,400.00 Total Liabilities and Stockholders' Equity $122,400.00

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I think you will get your answer if you look up the definition of Retained Earnings. If you'd like to post your answer here, we can verify it for you. Thanks.

Thank you.. I was confused because the teacher had said we needed to add the contributed capital to the Retained Earnings Statement.. the net income would be 13,550

$13,550 is correct. A Statement of Retained Earnings only deals with the changes to RE - beginning RE, net income, dividends, ending RE. If you add the contributed capital, you then have a "Statement of Retained Earnings and Stockholders' Equity".

So if I understand well, if there were dividends too, the net income would have been (Retained Earnings + Dividends)?

And same for beginning RE and end RE?

When dividends are declared the entry is to debit RE and credit Dividends Payable. When paid, you dr Dividends Payable and cr Cash. Dividends are a reduction to RE. So in this case, if a $1000 dividend was declared, we would know that net income was $14,550 making RE $13,550 ($14,550-$1,000). So, yes, you are correct. I wanted to write it out to make sure both you and the OP understand.

Not sure what you mean by: And same for beginning RE and end RE?

Like if there were beginning Retained Earnings, as per your precedent post, say of $1000, then the net income would have been $14,550, right?

Unky, I'm a detail type person, so I'll probably answer this in more detail than you need... but I want to be sure it is clear.

If the beginning balance had been $1,000 and the ending balance is $13,550 with no dividends declared, the net income would have been $12,550.

If the beginning balance had been $1,000 and the ending balance is $13,550 with $1,000 dividends declared, the net income would have been $13,550.



The formula is:

Beginning Balance
+ Net Income
- Dividends
= Ending Balance

Ah, I can see it better now :)

Thanks!

I need to spread the rep :(