I'm not sure how to work this oroblem. Can someone assist me. revenues of $230,000 and expenses, including income taxes, of $190,000. On December 31, 2005, Edgemont had assets of $350,000, liabilities of $80,000, and capital stock of $210,000. Edgemont paid a cash dividend of $25,000 in 2006. No additional stock was issued. Compute the retained earnings on December 31, 2005, and 2006

Accounting is not my area. However, as I read your question, the firm had 230,000 revenue, 190,000 expenses, for a net profit after tax of 40,000. It paid 25,000 in dividends. Thus, retained earnings must be 15,000. As I see it, assets, liabilities and capital stock amounts are red herrings in your problem.

To compute the retained earnings on December 31, 2005 and 2006, follow these steps:

1. Start with the net profit after tax for the year. In this case, the net profit after tax is $40,000.

2. Deduct any dividends paid during the year. In 2006, Edgemont paid a cash dividend of $25,000. Therefore, subtract $25,000 from the net profit after tax to get the retained earnings for that year.

3. The retained earnings at the beginning of the year is the retained earnings from the previous year. Since there is no information provided about the retained earnings at the beginning of 2005, we will assume it to be zero.

4. To calculate the retained earnings on December 31, 2005, add the net profit after tax for the year to the retained earnings at the beginning of the year. In this case, $0 + $40,000 gives us a retained earnings of $40,000 for 2005.

5. To calculate the retained earnings on December 31, 2006, add the net profit after tax for the year ($40,000) to the retained earnings at the beginning of the year. In this case, $40,000 (previous year retained earnings) + $40,000 (net profit after tax) gives us a retained earnings of $80,000 for 2006.

So, the retained earnings on December 31, 2005, is $40,000, and the retained earnings on December 31, 2006, is $80,000.