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

Question

Atlantic Corporation reported the following amounts at the end of the first year of operations: common stock $110,000; sales revenue $710,000; total assets $510,000; dividends declared $42,000; 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 $640,000.

b )Retained earnings are $70,000 and expenses incurred totaled $598,000.

c) Retained earnings are $180,000 and expenses incurred totaled $530,000.

d )Retained earnings are $180,000 and expenses incurred totaled $290,000.

Explanation / Answer

Answer is option B

Retained earnings are 70000

and expenses totalled = 598000

We conclude as follows

We know Total assets = Total liabilities + Total equity

where total equity = common stock + retained earnings

i.e

510000 = 330000 + 110000 + Retained earnings

Rearranging data , 510000 - 330000 - 110000 = Retained earnings

70000 = Retained earnings

Now these are retained earnings at end

and Dividend declared is given at 42000

So Net Income for the year would be = 70000 + 42000 , = 112000

Now Expenses for year can be caculated as

= Sales Revenue - Net Income

= 710000 - 112000, = 598000

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