Retained Earnings Computations
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.


This is what I came up with, tell me if I am right or not


Retained Earning Computations

Edgemont Corporation
Statement of Retained Earnings
For the Year Ended December 31, 2006

Retained earnings, December 31, 2005 $480,000 $
Net Income $40,000
Dividend -25,000

Retained Earning December 31, 2006 $495,000

Opening retained earnings should be $60,000

A =L + E
350000=80000+210000+x

x = 60000

Rev 230
Exp 190
NI = 40

Opening:
Assets 350
Liab 80
Cap Stock 210
Therefore, Opening R/E is 60

Assets = Liab + Cap Stock + R/E
So 350 – 80 – 210 = 60


Plus NI of 40
Less Dividends of 25
Closing R/E 75

Opening R/E 60,000 and Closing R/E 75,000

How do we calcualte reatined earnings?

Quote:

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Originally Posted by gangwar ajay

how do we calcualte reatined earnings?

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Please start your own thread. And calculate based on what information? There are many different ways problems can present information, and therefore many different ways it can be calculated. (Including the totally bassackwards way the problem above presents it.)

Basic retained earnings is beginning balance + net income (or - net loss) - dividends declared = ending balance. But that's the normal forward way real companies really do it and does not always apply to the completely backwards, illogical things problems can do.