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A corporation begins the period with retained earnings of $60,000, earns net income of $40,000, and declares cash dividends of $6,000 and stock dividends of $4,000. What is the closing retained earnings balance?
A$96,000
B$100,000
C$94,000
D$90,000
Answer & Solution
Correct answer: D. $90,000
1. Start with opening retained earnings of $60,000.
2. Add net income: $60{,}000 + 40{,}000 = \$100{,}000$.
3. Both cash and stock dividends reduce retained earnings: $6{,}000 + 4{,}000 = \$10{,}000$.
4. Closing retained earnings = $100{,}000 − 10{,}000 = \$90{,}000$.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §6.7 "Stockholders' Equity Section of the Balance Sheet", p.261_
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