Love Company’s accounting records show an after-closing balance of $20,000 in its Retained Earnings account on December 31, 2016. During the 2016 accounting cycle, Love earned $16,300 of revenue, incurred $9,800 of expense, and paid $2,100 of dividends. Revenues and expenses were recognized evenly throughout the accounting period.

Required
a.	Determine the balance in the Retained Earnings account as of January 1, 2017.

b. Determine the balance in the temporary accounts as of January 1, 2016.




c. Determine the after-closing balance in the Retained Earnings account as of December 31, 2015.



d. Determine the balance in the Retained Earnings account as of June 30, 2016.

Explanation:

a.

Retained Earnings is a permanent account, meaning that one period's ending balance becomes the next period's beginning balance.  Since the December 31, 2016 balance is $20,000, this was also the balance on January 1, 2017.

b.

The balance in the temporary accounts will be zero on January 1, 2016.  The temporary accounts would have been closed to Retained Earnings on December 31, 2015, thus leaving a zero balance.

  
c.

The December 31, 2015 balance in the Retained Earnings account is the same balance as the January 1, 2016 balance, computed as follows:

  

Beginning retained earnings balance (January 1, 2016)		?
+ Net income (Revenue $16,300 – Expenses $9,800)		6,500
– Dividends		(2,100	)
Ending retained earnings balance (December 31, 2016)		20,000

  

End. Retained Earnings + Dividends – Net Income = Beg. Retained

Earnings; and January 1, 2016 = December 31, 2015

= $20,000 + $2,100– $6,500  = $15,600 = January 1, 2016 Retained Earnings

Therefore: December 31, 2015 Retained Earnings = $15,600.

d.

The revenue and expense data are recorded in Revenue and Expense accounts and do not affect retained earnings at the time of recognition.  The balance in the Retained Earnings account on June 30, 2016 is the same as it was on January 1, 2016 which is $15,600.