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Chapter 4: Q23E (page 225)

McGregor Insurance Agency started the year with a beginning Retained Earnings balance of \(27,500. During the year, McGregor Insurance Agency earned \)34,000 of Service Revenue and incurred \(23,500 of various expenses. Dividends of \)12,000 from the business were paid to stockholders. After the closing entries are recorded and posted, what will be the balance of Retained Earnings?

Short Answer

Expert verified

Ending balance of retained earnings equals to $26,000

Step by step solution

01

Calculation of net income

Net income is calculated as follows

NetIncome=TotalRevenues-TotalExpenses=$34,000-$23,500=$10,500

02

Calculation of ending balance of retained earnings

Ending balance of retained earnings is calculated as follows:

EndingBalance=BeginningBalance+NetIncome-Dividends=$27,500+$10,500-$12,000=$26,000

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