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 & 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?
a. $85,000
b. Not enough information is provided.
c. $45,000
d. $55,000
To calculate the retained earnings for Peck Company at December 31, 2010, you'll need to subtract the total expenses and dividends from the sales.
Step 1: Subtract the cost of sales, selling, general & administrative expense, and other expense from the sales:
$1,560,000 - $1,400,000 - $40,000 - $30,000 = $90,000
Step 2: Subtract the income tax expense from the result in Step 1:
$90,000 - $25,000 = $65,000
Step 3: Subtract the dividends from the result in Step 2:
$65,000 - $10,000 = $55,000
Therefore, the amount reported as Retained Earnings on Peck Company's Balance Sheet at December 31, 2010, is $55,000.
The answer is option 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 is calculated by subtracting the cost of sales, selling, general & administrative expense, other expense, income tax expense, and dividends from the sales.
Given the information provided:
Sales = $1,560,000
Cost of Sales = $1,400,000
Selling, general & administrative expense = $40,000
Other Expense = $30,000
Dividends = $10,000
Income Tax Expense = $25,000
Net Income = Sales - Cost of Sales - Selling, general & administrative expense - Other Expense - Income Tax Expense - Dividends
Net Income = $1,560,000 - $1,400,000 - $40,000 - $30,000 - $25,000 - $10,000
Net Income = $55,000
Now, since this is the first year of operations, the retained earnings at the beginning of the year would be zero. Therefore, the retained earnings at the end of the year would be equal to the net income.
Retained Earnings = Net Income
Retained Earnings = $55,000
Therefore, the amount that will be reported as Retained Earnings on the balance sheet at December 31, 2010, is $55,000.
So the correct answer is d) $55,000.