Praxis Business-Education-Content-Knowledge-5101 Question # 3 Topic 1 Discussion

Retained earnings represent the cumulative net income retained by a company after dividends. The formula for ending retained earnings is: Ending Retained Earnings = Beginning Retained Earnings + Net Income − Dividends. Given the beginning retainedearnings of $200,000, net income of $150,000, and dividends of $50,000, the calculation is: $200,000 + $150,000 − $50,000 = $300,000. Option A ($250,000) incorrectly omits net income or miscalculates dividends. Option C ($350,000) ignores dividends. Option D ($400,000) adds dividends instead of subtracting. This question tests advanced financial statement analysis, a critical component of the Accounting and Finance category, requiring precise application of the retained earnings formula under time pressure, typical of the Praxis 5101 exam’s complexity.