The following selected account balances were taken from Buckeye Company\'s gener

Question

 The following selected account balances were taken from Buckeye Company's general ledger at January 1, 2005 and December 31, 2005: 

                     January 1, 2005      December 31, 2005 

 Accounts receivable    50,000                71,000 Inventory              39,000                28,000 Accounts payable       45,000                54,000 Salaries payable        7,000                 3,000 Investments            59,000                46,000 Common stock          110,000               130,000 Retained earnings      21,000                45,000 

 The following selected information was taken from Buckeye Company's 2005 statement of cash flows for 2005: 

 Cash collected from customers           $385,000 Cash paid to purchase inventory          199,000 Cash paid to employees                    80,000 Cash received from sale of investments    15,000 Cash paid for dividends                   30,000 

 Calculate the amount of net income reported in Buckeye Company's 2005 income statement. 

Explanation / Answer

Hi,

Please find the answer as follows:

Net Income Reported in BuckEye's Income Statement = Closing Balance of Retained Earnings + Dividends Paid During the Year - Opening Balance of Retained Earnings = 45000 + 30000 - 21000 = 54000.

Notes:

The balance of net income after payment of dividends is transferred to retained earnings, that's why we make adjustments for dividends (it is added back) and opening value of retained earnings (since ending balance of retained earnings would comprise some/complete portion of opening retained earnings.

Thanks.

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