Gilkey Corporation Began The Year With Retained Earnings Of $310,000. During The Year, The Company Issued $420,000 Of Common Stock, Recorded Expenses Of $1,200,000, And Paid Dividends Of $80,000. If Gilkey's Ending Retained Earnings Was $330,000, What Was The Company's Revenue For The Year?

Gilkey Corporation Began The Year With Retained Earnings Of $310,000. During The Year, The Company Issued $420,000 Of Common Stock, Recorded Expenses Of $1,200,000, And Paid Dividends Of $80,000. If Gilkey's Ending Retained Earnings Was $330,000, What Was The Company's Revenue For The Year? A) $1,220,000 B) $1,300,000 C) $1,640,000 D) $1,720,000
Before answering this multiple choice question, let’s know little bit about accounting terms used in the formulas.

Expenses:

Expenses are the costs of doing business.

Revenues:

Revenues are income earned by the business by selling goods or services during the current accounting period. If the business makes revenues from its day-to-day activities, then the business is performing well during the period.

Net Income

It is the difference between revenues and expenses for the period.

Retained Earnings:

Earnings retained in the business to be used for purchasing assets, stabilizing & growing business, etc.

Beginning Retained Earnings

Earnings of the previous accounting period.

Ending Retained Earnings

These are earnings retained during the current accounting period.

Dividends:

Share of profits distributed to shareholders / stockholders of the company / corporation who invested into the business to get a share of returns on their investments.

The correct option of this multiple choice question is B as proved below:

Given:

Opening Retained Earnings = $310,000

Common Stock = $420,000 (it is not required for the calculation of Net Income a)

Expenses = $1,200,000

Dividend = $80,000

Closing Retained Earnings = $330,000

Required:

Revenue for the year = ?

Firstly, we calculate net income for the year and then we find out revenue for the period.

We know that:

Closing Retained Earnings = Opening Retained Earnings + Net Income - Dividends

$330,000 = $310,000 + Net Income - $80,000

Net Income = $330,000 - $310,000 + $80,000

Net Income = $100,000

As, we know that:

Net Income = Revenues - Expenses

Revenues = Net Income + Expenses

Revenues = $100,000 + $1,200,000 = $220,000

By using statement of retained earnings, we can also find out any missing figure if other figures of the equation are given.

In case of net loss, the minus sign is used in the calculation

The other options of this mcq are incorrect choices here.

Comments

Post a Comment