Retained Earnings Formula Determines Operating Profit

Steps:

• Recall the retained earnings equation: Ending retained earnings = Beginning retained earnings + Profit from operations - Dividends paid.
• Rearrange the equation to solve for profit: Profit from operations = Ending retained earnings - Beginning retained earnings + Dividends paid.
• Substitute the given values into the formula.
• Calculate to find profit from operations equals $134,000.

Why B is correct:

• $134,000 matches the result from the retained earnings formula, which isolates net addition to retained earnings after accounting for dividends.

Why the others are wrong:

• A: Results from subtracting dividends instead of adding them to the change in retained earnings.
• C: Assumes profit equals the net change in retained earnings without adding back dividends.
• D: Adds dividends to beginning retained earnings without considering the ending balance.

Final answer: B