Atlantic Corporation reported the following amounts at the end of the first year of operations
Posted: Sat Aug 07, 2021 6:40 am
Common stock $ 200,000
Sales revenue $ 800,000
Total assets $ 600,000
Dividends declared $ 40,000
Total liabilities $ 320,000
What are the retained earnings of Atlantic at the end of the year, and what amount of expenses
were incurred during the year?
A) Retained earnings are $80,000 and expenses incurred totaled $680,000.
B) Retained earnings are $80,000 and expenses incurred totaled $720,000.
C) Retained earnings are $280,000 and expenses incurred totaled $480,000.
D) Retained earnings are $280,000 and expenses incurred totaled $520,000.
Answer: A
Explanation: Stockholders' equity = $280,000 (Total assets $600,000 − Total liabilities
$320,000).
Stockholders' equity ($280,000) = Common stock ($200,000) + Retained earnings ($80,000).
Retained earnings ($80,000) = Net income − Dividends declared ($40,000).
Net income = $120,000.
Sales Revenue ($800,000) − Expenses = Net income ($120,000).
Expenses = $680,000.
Sales revenue $ 800,000
Total assets $ 600,000
Dividends declared $ 40,000
Total liabilities $ 320,000
What are the retained earnings of Atlantic at the end of the year, and what amount of expenses
were incurred during the year?
A) Retained earnings are $80,000 and expenses incurred totaled $680,000.
B) Retained earnings are $80,000 and expenses incurred totaled $720,000.
C) Retained earnings are $280,000 and expenses incurred totaled $480,000.
D) Retained earnings are $280,000 and expenses incurred totaled $520,000.
Answer: A
Explanation: Stockholders' equity = $280,000 (Total assets $600,000 − Total liabilities
$320,000).
Stockholders' equity ($280,000) = Common stock ($200,000) + Retained earnings ($80,000).
Retained earnings ($80,000) = Net income − Dividends declared ($40,000).
Net income = $120,000.
Sales Revenue ($800,000) − Expenses = Net income ($120,000).
Expenses = $680,000.