Company A started the year with \$50,000 in retained earnings. During the year, it earned a net income of \$20,000 and paid dividends of \$5,000. What is the amount of retained earnings (a component of equity) at the end of the year for Company A?

• A. \$70,000
• B. \$65,000
• C. \$75,000
• D. \$55,000

Answer: (B)

Verified step by step guidance

1. Start by understanding the formula for calculating retained earnings at the end of the year: Retained Earnings (End) = Retained Earnings (Beginning) + Net Income - Dividends.
2. Identify the values provided in the problem: Retained Earnings (Beginning) = \$50,000, Net Income = \$20,000, and Dividends = \$5,000.
3. Substitute the values into the formula: Retained Earnings (End) = \$50,000 + \$20,000 - \$5,000.
4. Perform the addition first: Add the beginning retained earnings (\$50,000) and the net income (\$20,000).
5. Subtract the dividends (\$5,000) from the result of the addition to calculate the retained earnings at the end of the year.