At the beginning of April, Owl Corporation has a balance of $12,000 in the Retained Earnings account. During the month of April, Owl had the following external transactions.
1. Issue common stock for cash, $10,000.
2. Provide services to customers on account, $7,500.
3. Provide services to customers in exchange for cash, $2,200.
4. Purchase equipment and pay cash, $6,600.
5. Pay rent for April, $1,200.
6. Pay workers' salaries for April, $2,500.
7. Pay dividends to stockholders, $1,500.
Using the external transactions above, compute the balance of Retained Earnings at April 30.
200
Retained earnings is 11,350
To compute the balance of Retained Earnings at April 30, we need to consider the effects of each transaction on the account.
1. Issue common stock for cash, $10,000.
- There is no impact on the Retained Earnings account since this transaction does not involve any earnings or profit.
2. Provide services to customers on account, $7,500.
- Earnings from providing services increase the Retained Earnings.
- Add $7,500 to the Retained Earnings.
3. Provide services to customers in exchange for cash, $2,200.
- Earnings from providing services increase the Retained Earnings.
- Add $2,200 to the Retained Earnings.
4. Purchase equipment and pay cash, $6,600.
- This transaction does not directly affect the Retained Earnings account since it involves the purchase of assets and not earnings.
5. Pay rent for April, $1,200.
- This transaction does not affect the Retained Earnings account since it involves an expense and not earnings.
6. Pay workers' salaries for April, $2,500.
- This transaction does not directly affect the Retained Earnings account since it involves an expense and not earnings.
7. Pay dividends to stockholders, $1,500.
- Dividends are a distribution of earnings to stockholders and decrease the Retained Earnings.
- Subtract $1,500 from the Retained Earnings.
Now, let's calculate the balance of Retained Earnings at April 30:
Beginning balance of Retained Earnings (April 1): $12,000
Add earnings from providing services on account: $7,500
Add earnings from providing services for cash: $2,200
Subtract dividends paid to stockholders: $1,500
Retained Earnings at April 30 = $12,000 + $7,500 + $2,200 - $1,500
Retained Earnings at April 30 = $20,200
Therefore, the balance of Retained Earnings at April 30 is $20,200.
To compute the balance of Retained Earnings at April 30, we need to consider the impact of each transaction on the Retained Earnings account.
Starting with the beginning balance of $12,000 in Retained Earnings:
1. Transaction 1: Issue common stock for cash, $10,000.
- This transaction does not directly impact Retained Earnings since it involves issuing new shares of stock.
- The balance of Retained Earnings remains at $12,000.
2. Transaction 2: Provide services to customers on account, $7,500.
- This transaction represents revenue earned but not yet received in cash.
- Retained Earnings is not affected at this point.
3. Transaction 3: Provide services to customers in exchange for cash, $2,200.
- This transaction represents revenue earned and received in cash.
- The amount of revenue ($2,200) will increase Retained Earnings.
4. Transaction 4: Purchase equipment and pay cash, $6,600.
- This transaction represents an expense, which decreases net income and thereby reduces Retained Earnings.
5. Transaction 5: Pay rent for April, $1,200.
- This transaction represents an expense and reduces net income, thereby reducing Retained Earnings.
6. Transaction 6: Pay workers' salaries for April, $2,500.
- This transaction represents an expense and reduces net income, thereby reducing Retained Earnings.
7. Transaction 7: Pay dividends to stockholders, $1,500.
- This transaction represents a distribution of profits to stockholders and reduces Retained Earnings.
To compute the balance of Retained Earnings at April 30, we need to calculate the net income (revenue - expenses) and adjust for dividends. Let's calculate:
Net Income = Revenue - Expenses
Revenue = $7,500 (transaction 2) + $2,200 (transaction 3) = $9,700
Expenses = $6,600 (transaction 4) + $1,200 (transaction 5) + $2,500 (transaction 6) = $10,300
Net Income = $9,700 - $10,300 = -$600 (a loss)
Balance of Retained Earnings at April 30 = Beginning Balance + Net Income - Dividends
Balance of Retained Earnings = $12,000 + (-$600) - $1,500 = $9,900
Therefore, the balance of Retained Earnings at April 30 is $9,900.