If 2014 net income were $4.0 billion (instead of $3.5 billion) and other items remain the same, what would the ending retained earnings be? Beginning retained earnings = $12.0 billion; preferred dividends = $0.1 billion; common dividends = $0.4 billion.

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Multiple Choice

If 2014 net income were $4.0 billion (instead of $3.5 billion) and other items remain the same, what would the ending retained earnings be? Beginning retained earnings = $12.0 billion; preferred dividends = $0.1 billion; common dividends = $0.4 billion.

Explanation:
Ending retained earnings reflect what remains after adding net income to the beginning balance and subtracting dividends paid. Use beginning retained earnings of 12.0 billion, add the net income of 4.0 billion, and subtract total dividends of 0.1 billion (preferred) plus 0.4 billion (common) = 0.5 billion. So: 12.0 + 4.0 − 0.5 = 15.5 billion. The other options would come from different inputs (for example, 15.0 would occur if net income were 3.5 billion with the same dividends, 16.0 would be if no dividends were paid, and 16.5 would require more net income or fewer dividends).

Ending retained earnings reflect what remains after adding net income to the beginning balance and subtracting dividends paid. Use beginning retained earnings of 12.0 billion, add the net income of 4.0 billion, and subtract total dividends of 0.1 billion (preferred) plus 0.4 billion (common) = 0.5 billion. So: 12.0 + 4.0 − 0.5 = 15.5 billion. The other options would come from different inputs (for example, 15.0 would occur if net income were 3.5 billion with the same dividends, 16.0 would be if no dividends were paid, and 16.5 would require more net income or fewer dividends).

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