Mr. Husker’s Tuxedos Corp. began the year 2012 with $266 million in retained ear

Question

Mr. Husker’s Tuxedos Corp. began the year 2012 with $266 million in retained earnings. The firm earned net income of $38 million in 2012 and paid dividends of $5 million to its preferred stockholders and $19 million to its common stockholders.

What is the year-end 2012 balance in retained earnings for Mr. Husker’s Tuxedos?

Mr. Husker’s Tuxedos Corp. began the year 2012 with $266 million in retained earnings. The firm earned net income of $38 million in 2012 and paid dividends of $5 million to its preferred stockholders and $19 million to its common stockholders.

Explanation / Answer

Retained earnings at beginning of the year = $266 million

Net income in year 2012 = $38 million

Dividend paid to common stock holder during year = $5 million

Dividend paid to preferred stock holder during year = $19 million

Retained earning at the end of the year is calculated below:

Retained earnings = $266 million + ($38 million – 5 million – $19 million)

                              = $266 million + $14 million

                              = $280 million

Hence, retained earnings at the end of the year is $280 million.

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