Sanchez Company reported the following items on its financial statement for the year ending December 31, 20X1. This is the first year of operations. Sales $865,000 Cost of Goods Sold $612,000 Salary Expense 30,000 Interest Expense 32,000 Dividends 25,000 Income Tax Expense 61,000 What is the ending balance in Retained Earnings for its first year (Beg Balance?

$105,000

Explanation:

Given that,

Sales = $865,000

Cost of Goods Sold = $612,000

Salary Expense = 30,000

Interest Expense = 32,000

Dividends = 25,000

Income Tax Expense = 61,000

Beginning Balance of Retained Earnings = $0

Gross Income = Sales - COGS

                       = $865,000 - $612,000

                       = $253,000

Net Income before taxes:

= Gross Income - Salary Expense - Interest Expense

= $253,000 - 30,000 - 32,000

= $191,000

Net Income after Taxes:

= Net Income before taxes - Income Tax Expense

= $191,000 - $61,000

= $130,000

Ending Balance in Retained Earnings:

= Beginning Balance of Retained Earnings + Net Income - Dividends paid

= $0 + $130,000 - $25,000

= $105,000

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