PROBLEM: During 2006, Edgemont Corporation had revenues of $230,000 and expenses, including income taxes, of $190,000. On December 31, 2005, Edgemont had assets of $350,000, liabilities of $80,000, and capital stock of $210,000. Edgemont paid a cash dividend of $25,000 in 2006. No additional stock was issued. Compute the retained earnings on December 31, 2005, and 2006

A=L+OE
350,00= 80,00+210,00+X
I have figured out that $60,00 is the answer to that equation.

My issue now is, have I solved the problem. I am assuming that all the other numbers really does not matter.

OR

Should it be

1) $60,000 - $25,000 (cash dividen paid) = $35,000
2) $230,00-190,000=$40,000 + it's official I'm lost

Please point me in the right direction.

Thank you in advance!

Beginning of 2006:
Assets = Liabilities + Capital Stock + Retained Earnings
350,000 = 80,000 + 210,000 +??

2006:
R 230,000
E 190,000

Dividends 25,000 paid in 2006


Retained Earnings Dec. 31, 2005:
350,000 – 80,000 – 210,000 = $60,000

Retained Earnings for Dec. 31, 2006:
Beginning Retained Earnings = $60,000
Plus Net Income (230,000-190,000) = $40,000
Less: Dividends Paid = $25,000
Retained Earnings, Dec. 31, 2006 = $75,000

Thank you, CaptainForest!

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