[ivory5130]

A firm had year end 2004 and 2005 retained earnings balances of 670,000 and 560,000 respectively. The firm paid 10 thousand in dividends in 2005. The firm's net profit after taxes in 2005 was ?

[codyman144]

You give it a try first and I will let you know.

[ivory5130]

I think it is a trick question because I thought you subtracted the dividends from the retained earnings to get your answer. However, the choices that were given are no where near the number that I came up with. Do you have a different formula for this.

[ivory5130]

I come up with 1,220,000 but my choices are a)-100,000 b)-110,000 c) 100,000 d) 110,000. How are they coming up with these answers or what am I doing wrong.

[codyman144]

The only ways retained earnings can decrease is if there is a net loss for the period or if you pay dividends...

Now can you figure it out?