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As of December 31, Year 2, Moss Company had total cash of $195,000, notes payable of $90,500, and common stock of $84,500. During Year 3, Moss earned $42,000 of cash revenue, paid $24,000 for cash expenses, and paid a $3,000 cash dividend to the stockholders.
Determine the amount of retained earnings as of December 31, Year 2.

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Answer:

$20,000

Explanation:

Calculation for the amount of retained earnings as of December 31, Year 2.

Using this formula

Retained earnings=Total cash -Notes payable-common stock

Where,

Total cash= $195,000

Notes payable= $90,500

Common stock= $84,500

Let plug in the formula

Retained earnings = $195,000 − $90,500 − $84,500

Retained earnings= $20,000

Therefore the amount of retained earnings as of December 31, Year 2 will be $20,000

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