ACCT 201 Principles of Financial Accounting Practice Exam - Chapter 1 Accounting Information For Business Decisions Dr. Fred Barbee Solution to Short-Problem #1

Short Problem #1

1.	Beginning retained earnings totaled $15,000 and the business sustained a net loss of $5,000 during the period. No dividends were paid during the period. If the Common Stock account balance is $40,000, what is the new balance of retained earnings and what is the end-of-period total equity?

Solution

Calculation: Beginning Retained Earnings of $15,000 - a net loss of $5,000 - $0 dividends = Ending Retained Earnings of $10,000. Stockholder equity is $50,000 (Common Stock of $40,000 + Retained Earnings of $10,000.