Which formula correctly determines ending retained earnings?

• A. Old retained earnings balance + this year's net income - dividends issued this year
• B. Ending cash balance + net income
• C. Net income + dividends
• D. Old APIC + SBC

Answer: (A)

Ending retained earnings represent the cumulative profits the company has kept rather than paid out. The value at the end of the period equals what you started with in retained earnings, plus the net income earned this period, minus any dividends paid to shareholders. That gives the standard formula: Ending Retained Earnings = Beginning Retained Earnings + Net Income − Dividends. The option matches this exactly by using the old retained earnings balance, adding this year’s net income, and subtracting the dividends issued this year.

Other choices mix in items that don’t affect retained earnings in the same way: ending cash is a liquidity measure, not a calculation of retained earnings; net income plus dividends ignores the starting retained earnings balance; and items like APIC (additional paid-in capital) or SBC (stock-based compensation) are components of equity but don’t determine the running total of retained earnings.