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Atlantic Corporation reported the following amounts at the end of the first year

ID: 2453402 • Letter: A

Question

Atlantic Corporation reported the following amounts at the end of the first year of operations: common stock $170,000; sales revenue $770,000; total assets $570,000; dividends declared $48,000; and total liabilities $330,000. What are Atlantics' retained earnings at the end of the year and what amount of expenses were incurred during the year?

a. Retained earnings are $70,000 and expenses incurred totaled $700,000.

b. Retained earnings are $240,000 and expenses incurred totaled $530,000.

c. Retained earnings are $70,000 and expenses incurred totaled $652,000.

d. Retained earnings are $240,000 and expenses incurred totaled $410,000.

Atlantic Corporation reported the following amounts at the end of the first year of operations: common stock $170,000; sales revenue $770,000; total assets $570,000; dividends declared $48,000; and total liabilities $330,000. What are Atlantics' retained earnings at the end of the year and what amount of expenses were incurred during the year?

Explanation / Answer

Answer:

Correct Answer is c. Retained earnings are $70,000 and expenses incurred totaled $652,000.

Working and calculation is as follows:

Total Assets = Common Stock + Total Liabilities + Retained Earnings (Reserve & Surplus)

$570,000 = $170,000 + $330,000 + Retained Earnings

Retained Earnings = $570,000 - $5,00,000 = $70,000

Retained Earnings = Sales Revenue – Total Expenses incurred during the year – Dividend Declared

$70,000 = $770,000 – Total Expenses incurred during the year - $48,000

Total Expenses incurred during the year = $770,000 - $48,000 - $70,000 = $652,000