Q2SE - Horngren'S Financial And Managerial Accounting

Question

Refer to the data in Short Exercise S4-1. Prepare Dalton’s statement of retained earnings for the year ended December 31, 2018.

Step-by-Step Solution

Answer

Statement of retained earnings is shown as follows:

DALTON HAIR STYLISTS
Statement of Retained Earnings
Year Ended December 31, 2018
Retained Earnings, January 1, 2018	$0
Net income for the year	4,550
	4,550
Dividends	(1,400)
Retained Earnings, December 31, 2018	$3,150

Step 1: Explanation on the statement of retained earnings

Statement of retained earnings represents the net change in the retained earnings due to income and dividend.

Step 2: Explanation on change in retained earnings

The beginning balance of the retained earnings equals $0, and the ending balance of retained earnings equals $3,150. Net income of $4,550 is added and dividends of $1,400 is subtracted from the beginning balance of retained earnings, to estimate ending balance of retained earnings.