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Retained Earnings Computations - During 2006, Edgemont Corporation had revenues of $230,000 and expenses, including income taxes, of $190,000
Retained Earnings Computations - During 2006, Edgemont Corporation had 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 retrained earnings on December 31, 2006.
Expert Solution
December 31, 2005:
Assets = $350,000 Liabilities and Shareholders' Equity
Liabilities= $80,000
Capital Stock = $210,000
Retained Income= $60,000
Total Assets= $350,000 Total Liabilities and Shareholders' Equity = $350,000
(Retained Earnings on December 31,2005 = Total Assets - Liabilities- Capital Stock = 350,000 - $80,000 - $210,000 = $60,000)
Net Income for year 2006 = Revenue - Expenses = $230,000 - $ 190,000 = $40,000
Retained earnings on December 31, 2006 = Beginning + Net Income - Dividends
= $60,000 + $40,000 - $25,000 = $75,000
Answer: $75,000.
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