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-   -   This is the problem I am stuck on. (https://www.askmehelpdesk.com/showthread.php?t=680708)

  • Jul 9, 2012, 12:43 PM
    brandy3806
    This is the problem I am stuck on.
    The cash balance was 4,000, and Notes Payable amounted to 2,000. The compnay had revenues of 6,000 and expenses of 3,500. The company's Land account had a 9,000 balance. Dividends amounted to 500. There was 6,000 of common stock issued.
    a)Assuming that the beginning balance in the Retained Earnings account was 2,600, determind its balance after the nominal accounts were closed.
    b)What is the net income to be reported?

    Can someone please help me with the formula to use and work the problem I seem to be getting the answer wrong when I try to work it.
  • Jul 9, 2012, 03:25 PM
    pready
    The first formula you need is: Assets = Liabilities + Owners Equity

    Owners Equity = Owners Investments(common stock) + Retained Earnings

    So your Assets are Cash and Land.

    Libilities are Notes Payable.

    Owners Equity is Common Stock and Retained Earnings

    You have everything you need to calculate Retained Earnings

    Retained Earnings = Assets - Liabilities - Common Stock


    For B you need to compute Net Income. So: Net Income = Revenues - Expenses

    There seems to be a mistake in the numbers that are provided or some information is missing because the Retained Earnings amount will not be the same if calculated a different way. The other way to calculate Retained Earnings is: Ending Retained Earnings = Beginning Retained Earnings + Net Income - Dividends
  • Jul 9, 2012, 03:26 PM
    paraclete
    Quote:

    Originally Posted by brandy3806 View Post
    The cash balance was 4,000, and Notes Payable amounted to 2,000. The compnay had revenues of 6,000 and expenses of 3,500. The company;s Land account had a 9,000 balance. Dividends amounted to 500. There was 6,000 of common stock issued.
    a)Assuming that the beginning balance in the Retained Earnings account was 2,600, determind its balance after the nominal accounts were closed.
    b)What is the net income to be reported?

    Can someone please help me with the formula to use and work the problem I seem to be getting the answer wrong when I try to work it.

    Sales - expenses = net earnings
    opening balance + net earnings for the year - dividends paid = closing balance

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