An example of statement of retained earnings is that of a mobile company which prepares a statement calculating the retained earnings at the end of the year where the statement shows opening retained earnings of $4000 as on April 1, 2018, net income generated from the operations as $1000, and dividend distributed to shareholders as $200 and by adding the net income to the opening retained earnings and deducting the amount of dividend distribution we get the closing retained earnings as on march 31, 2019 as $4800.
Examples of Retained Earnings Statement
Statement of retained earnings shows how the retained earnings have changed during the financial period. This financial statement provides the beginning balance of retained earnings, ending balance and other information required for reconciliation. Let’s look at some examples of Statement of Retained Earnings. We will try to address as many situations/variations in these examples but please note that these situations are not fully exhaustive and you might encounter ones which vary from those given in the below examples, however, you must remember that the core reasoning and concept behind the statement of retained earnings remain the same.
Top 4 Real Life Examples of Statement of Retained Earnings
Below are the examples of statement of retained earnings.
Example #1 – KMP Limited
KMP Limited reported a Net Income of $ 84000 for the year ended December 31, 20X8. Retained Earnings on January 1, 20X8 were $ 47000. The company did not pay any dividends in the year 20X8.
Therefore, the statement of retained earnings will be –
Calculation:
Retained Earnings on December 31 20X8 = Retained Earnings on January 1, 20X8 + Net Income – Dividends Paid
= 47000 + 84000 – 0
= $ 131,000
Example #2 – ChocoZa
You started a homemade chocolate company called ChocoZa in the year 20X6. The Net Income (Net Loss) and dividends paid are as per below for the years 20X6-20X9.
The Retained Earnings (Accumulated Deficit) for all the four years is calculated as per below:
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Retained Earnings for Year 20X6
- Year 20X6: Retained Earnings (Accumulated Deficit)= Beginning Retained Earnings + Net Income (Net Loss) – Dividends
- = 0 – 90000 – 0
- = -90,000
We have an accumulated deficit of -90,000 in the year 20X6. (Please note that negative result for retained earnings implies Accumulated Deficit)
Retained Earnings for Year 20X7
- Year 20X7: Retained Earnings (Accumulated Deficit)= Beginning Retained Earnings + Net Income (Net Loss) – Dividends
- = -90000 – 40000 – 0
- = -13000
We have an accumulated deficit of -130,000 in the year 20X7
Retained Earnings for Year 20X8
- Year 20X8: Retained Earnings (Accumulated Deficit)= Beginning Retained Earnings + Net Income (Net Loss) – Dividends
- = -130,000 + 135000 – 0
- = 5000
We have retained earnings of $ 5000 in the year 20X8
Retained Earnings for Year 20X9
- Year 20X9: Retained Earnings (Accumulated Deficit)= Beginning Retained Earnings + Net Income (Net Loss) – Dividends
- = 5000 + 210000 – 30000
- = 185000
Thus, we have retained earnings of $ 185,00 in the year 20X9
The retained earnings and accumulated depreciation are summarized in the below table:
Example #3 – Dee Private Limited
* This example discusses the scenario in which the company pays cash dividend
Dee Private Limited had a net income of $ 260,000 for the year ended December 31, 20X8. Also, retained earnings at the beginning of the same year were $ 70,000. The company has 10000 shares of its common stock outstanding. The company pays a dividend of $1 on each of its shares.
Therefore, retained earnings can be calculated as –
Calculation:
- Retained Earnings on December 31 20X8 = Retained Earnings at beginning of year + Net Income – Cash Dividends Paid
- = 260000 + 70000 – (10000 * $1)
- = 260000 + 70000 – 10000
- = 320000
Example #4 – Supreme Ltd
* This example discusses the scenario in which the company pays a stock dividend
Supreme Ltd had retained earnings of $ 38000 on January 1, 20X5. The company reported net income of $ 164000 for the year. The company, looking at good net income for the year, decided to pay a stock dividend of 10% on 10000 common shares when the shares were trading at $ 14 per share in the market.
Therefore, retained earnings can be calculated as –
Calculation:
- Retained Earnings on December 31 20X5 = Retained Earnings on January 1, 20X5 + Net Income – Stock Dividends Paid
- = 38000 + 164000 – (0.10 * 10000 * 14)
- = 38000 + 164000 -14000
- = $ 188,000
Conclusion
We must remember that retained earnings help us gauge the amount of net income that is left with a company after dividends (cash/stock) are paid to the shareholders. This understanding itself would make the interpretation and presentation of the statement of retained earnings very intuitive for us.
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This has been a guide to the Statement of Retained Earnings Examples. Here we discuss the top 4 examples of the Statement of Retained Earnings which will clarify your understanding of the Statement of Retained Earnings and should enable us to calculate and interpret the Statement in different scenarios in real life. You can learn more about accounting from the following –
