Ken Young and Kim Sherwood organized Reader Direct as a corporation; each contributed $47,000 cash to start the business and received 4,000 shares of stock. The store completed its first year of operations on December 31, 2017. On that date, the following financial items for the year were determined: cash on hand and in the bank, $42,500; amounts due from customers from sales of books, $27,700; equipment, $46,000; amounts owed to publishers for books purchased, $8,200; one-year notes payable to a local bank for $4,050. No dividends were declared or paid to the stockholders during the year. Assuming that Reader Direct generates net income of $7,000 and pays dividends of $2,800 in 2018, what would be the ending Retained Earnings balance at December 31, 2018?

Reader Direct Corporation

The ending Retained Earnings balance at December 31, 2018 is:

$14,150

Explanation:

a) Data and Calculations:

Cash on hand and in the bank, $42,500;

Amounts due from customers from sales of books, $27,700;

Equipment, $46,000;

Amounts owed to publishers for books purchased, $8,200;

One-year notes payable to a local bank for $4,050

Common Stock ($47,000 * 2) = $94,000

Assets:

Cash                           $42,500

Accounts Receivable   27,700

Equipment                   46,000

Total assets              $116,200

Liabilities + Equity:

Accounts Payable      $8,200

Notes Payable             4,050

Total liabilities          $12,250

Equity:

Common Stock      $94,000

Retained Earnings     9,950

Total equity          $103,950

Liabilities + equity $116,200

Retained Earnings:

Dec. 31, 2017          $9,950

Net income               7,000

less Dividends        (2,800)

Dec. 31, 2017        $14,150

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