CFA Level I · CFA Level I Exam · Introduction to Financial Statement Analysis
At year-end, a company has total assets of 900 and total liabilities of 540. Contributed capital is 200. During the year, it reported net income of 120 and paid dividends of 40, and had no other equity changes. Retained earnings at the start of the year were closest to:
Opening retained earnings were about 80. Ending equity is 360, so ending retained earnings are 160 after deducting 200 of contributed capital. Reversing the year's activity, subtract net income of 120 and add back dividends of 40, giving 80.
- A80
- B120Correct
- C160
Explanation
Equity = 900 - 540 = 360. Retained earnings at end = 360 - 200 = 160. Opening RE = 160 - 120 + 40 = 80. Using 160 confuses ending with opening, and 120 ignores dividends.
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