Peck Company
The Peck Company reported the following items on its financial statements for the year ending December 31, 2010.
Sales - $1,560,000
Cost of Sales - $1,400,000
Selling, general and administrative expense - 40,000
Other Expense - 30,000
Dividends - 10,000
Income Tax Expense - 25,000
Refer to Peck Company. How much will be reported as Retained Earnings on its Balance Sheet at December 31, 2010, if this is the first year of operations?
Answer
a. $85,000
b. Not enough information is provided.
c. $45,000
d. $55,000
To determine the retained earnings on the Balance Sheet at December 31, 2010, we need to calculate the net income for the year.
Net Income = Sales - Cost of Sales - Selling, General and Administrative Expense - Other Expense - Income Tax Expense
Net Income = $1,560,000 - $1,400,000 - $40,000 - $30,000 - $25,000
Net Income = $65,000
Since this is the first year of operations, there are no prior retained earnings. Therefore, the retained earnings for the Balance Sheet would be equal to the net income.
Retained Earnings = Net Income = $65,000
So, the correct answer is d. $55,000.