Schumacher Company uses the perpetual inventory system, and it engaged in the fo

Question

Schumacher Company uses the perpetual inventory system, and it engaged in the following transactions during 2014:
1- Started the business by issuing common stock for $7,500 cash
2- Paid cash to purchase $5,000 of inventory
3- Sold inventory that cost $3,000 for $7,250 cash
4- Incurred and paid operating expenses, $250
Schumacher Company engaged in the following transactions during 2015:
1- Paid cash to purchase $5,800 of inventory
2- Sold inventory that cost $7,000 for $15,150 cash
3- Incurred and paid operating expenses, $500
The amount of Retained Earnings at December 31, 2015 is:

       $4,250.
       $11,150.
       $11,650.
       $6,500.

Explanation / Answer

Retained earnings as on December 31,2015

$ Sales of Inventory 7250 Cost Of sales 3000 Gross Profit 4250 Less: Operating Expenses 250 Net Income transferred to retained earnings (A) $4000 Sales of Inventory 15150 Cost Of sales 7000 Gross Profit 8150 Less: Operating Expenses 500 Net Income transferred to retained earnings (B) $7650 Balance in retained earnings (A+B) $11650

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