[sandyc82]

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

[Just Looking]

Please read this:
Announcement:

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.

[sandyc82]

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

[Just Looking]

$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".

[Unknown008]

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?

[Just Looking]

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?

[Unknown008]

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?

[Just Looking]

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

[Unknown008]

Ah, I can see it better now :)

Thanks!

I need to spread the rep :(