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    jerobertson's Avatar
    jerobertson Posts: 2, Reputation: 1
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    #1

    Sep 30, 2006, 11:35 AM
    Accounting homework question
    During 2006, edgemont Corp 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 Dec 31, 2005 & 2006
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    CaptainForest Posts: 3,645, Reputation: 393
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    #2

    Sep 30, 2006, 01:42 PM
    How do YOU think you should answer this question?

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    jerobertson's Avatar
    jerobertson Posts: 2, Reputation: 1
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    #3

    Sep 30, 2006, 08:26 PM
    I really have no idea.

    Assets (350,000) = Liabilities (80,000) + capital stock (210,000) & retained earnings. but I'm not sure where to go from here
    CaptainForest's Avatar
    CaptainForest Posts: 3,645, Reputation: 393
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    #4

    Sep 30, 2006, 08:53 PM
    End of 2005/Start of 2006:
    Assets = 350,000

    Liabilities = 80,000
    Shareholders Equity = 270,000 (350,000-80,000 because Assets = Liabilities + Equity)

    To break down Shareholder's Equity further…. = Capital Stock + Retained Earnings
    270,000 = 210,000 + Retained Earnings
    Retained Earnings = 60,000

    Events that occurred DURING 2006:
    Revenues 230,000
    Expenses and Tax 190,000
    Net Income 40,000

    Paid a cash dividend of 25,000
    No addition stock was issued


    What is the retained earnings?

    For Dec. 31, 2005 it is $60,000 as calculated above.

    For Dec. 31, 2006, it is as follows:

    Retained Earnings, Jan 1, 2006 $60,000
    Plus Net Income $40,000
    Less: Dividend Paid $25,000
    Retained Earnings, Dec. 31/06 $75,000

    Therefore R/E for Dec. 31/05 is $60,000 and for Dec. 31/06 it is $75,000
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