If a company has beginning retained earnings of \$1, net income of \$5, and declares dividends of \$2 during the year, what will be the ending retained earnings?

• A. \$3
• B. \$4
• C. \$8
• D. \$6

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the formula for calculating ending retained earnings. The formula is: Ending Retained Earnings = Beginning Retained Earnings + Net Income - Dividends.
2. Step 2: Identify the values provided in the problem. Beginning Retained Earnings = \$1, Net Income = \$5, Dividends = \$2.
3. Step 3: Substitute the values into the formula. Using MathML, the formula becomes: $\mathrm{Ending\; Retained\; Earnings}=\mathrm{Beginning\; Retained\; Earnings}+\mathrm{Net\; Income}-\mathrm{Dividends}$.
4. Step 4: Perform the addition and subtraction operations step by step. First, add Beginning Retained Earnings (\$1) and Net Income (\$5), then subtract Dividends (\$2).
5. Step 5: The result of the calculation will give you the Ending Retained Earnings. Ensure all operations are performed correctly to arrive at the final value.