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To calculate: The balance of
Answer to Problem 3.15E
The balance of retained earnings each year for the given companies is as follows:
| ($ in millions) | ||||
| Year | Company V | Company R | ||
| Net income (loss) | Retained earnings | Net income (loss) | Retained earnings | |
| 2009 | 0 | $0 | $35 | $11 |
| 2010 | $30 | 30 | -43 | -32 |
| 2011 | -7 | 23 | 63 | 31 |
| 2012 | 41 | 64 | 63 | 94 |
| 2013 | 135 | 199 | 102 | 196 |
| 2014 | 30 | 229 | 135 | 331 |
| 2015 | -131 | 98 | -42 | 289 |
| 2016 | 577 | 675 | 74 | 363 |
| 2017 | 359 | 1,034 | 110 | 473 |
| 2018 | 360 | 1,394 | 162 | 635 |
Table (1)
Explanation of Solution
Retained earnings:
Retained earnings are the portion of earnings kept by the business for the purpose of reinvestments, payment of debts, or for future growth.
Working note:
1. Calculate the retained earnings Company V.
Year 2010:
Opening retained earnings = $0
Net income = $30 million
Dividends = $0
Year 2011:
Opening retained earnings = $30 million
Net loss = $7 million
Dividends = $0
Year 2012:
Opening retained earnings = $23 million
Net income = $41 million
Dividends = $0
Year 2013:
Opening retained earnings = $64 million
Net income = $135 million
Dividends = $0
Year 2014:
Opening retained earnings = $199 million
Net income = $30 million
Dividends = $0
Year 2015:
Opening retained earnings = $229 million
Net loss = $131 million
Dividends = $0
Year 2016:
Opening retained earnings = $98 million
Net income = $577 million
Dividends = $0
Year 2017:
Opening retained earnings = $675 million
Net income = $359 million
Dividends = $0
Year 2018:
Opening retained earnings = $1,034 million
Net income = $360 million
Dividends = $0
2. Calculate the retained earnings Company R.
Year 2010:
Opening retained earnings = $11 million
Net loss = $43 million
Dividends = $0
Year 2011:
Opening retained earnings = $(32 million)
Net income = $63 million
Dividends = $0
Year 2012:
Opening retained earnings = $31 million
Net income = $63 million
Dividends = $0
Year 2013:
Opening retained earnings = $94 million
Net income = $102 million
Dividends = $0
Year 2014:
Opening retained earnings = $196 million
Net income = $135 million
Dividends = $0
Year 2015:
Opening retained earnings = $331 million
Net loss = $42 million
Dividends = $0
Year 2016:
Opening retained earnings = $289 million
Net income = $74 million
Dividends = $0
Year 2017:
Opening retained earnings = $363 million
Net income = $110 million
Dividends = $0
Year 2018:
Opening retained earnings = $473 million
Net income = $162 million
Dividends = $0
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Chapter 3 Solutions
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