Lakeview Industries had sales of $40 million and net income of $2 mill

Lakeview Industries had sales of $40 million and net income of $2 million in 2012. Lakeview paid a dividend of $1.5 million.

Assuming that their beginning balance for retained earnings was $4 million, calculate their ending balance for retained earnings.
A) $4.5 million
B) $2.5 million
C) $3 million
D) $4 million

ANSWER

A
Explanation: A) Addition to R/E = NI – Div = $2,000,000 – $1,500,000 = $500,000. Accumulated R/E = Existing R/E + Addition to R/E = $4,000,000 + $500,000 = $4,500,000.