On December 31 of year 1 Acme Company had assets of 149021 l

On December 31 of year 1, Acme Company had assets of $149021, liabilities of $98453, and capital stock of $30393. During year 2, Acme earned revenues of $45683 and incurred expenses of $33373. During year 2 the firm declared and paid Dividends amounting to $3011. Compute the company’s retained earnings on December 31 of year 1.

Solution

Calculation of retained earning on December 31 of Year 1: As per Balance Sheet Equation, Stockholder\'s Equity = Total Assets - Total Liabilities = $       1,49,021 - $       98,453 = $           50,568 Retained Earning = Stockholder\'s Equity - Capital Stock = $           50,568 - $       30,393 = $           20,175