Question

During the first five years of operations, Red Raider consulting reports net income and pays dividends as follows.Year Net Income Dividends Retained Earnings1 $1200 $500 2 1700 500 3 2100 1000 4 3200 1000 5 4400 1000 Calculate the balance of retained earnings at the end of each year.

Answer 1

Answer:

Please refer to the below for the retained earnings at each year end

Explanation:

Retained earnings refers to the earnings available to a business enterprise after the deduction or payment of dividend.

Retained earnings = Beginning balance + Net income for the year - Dividends paid

Year 1

Retained earnings = 0 + 1,200 - 500

= $700

Year 2

Retained earnings = 700 + 1700 - 500

= $1,900

Year 3

Retained earnings = 1,900 + 2,100 - 1,000

= $3,000

Year 4

Retained earnings = 3,000 + 3,200 - 1,000

= $5,200

Year 5

Retained earnings = 5,200 + 4,400 - 1,000

= $8,600