At the end of Year 2, retained earnings for the Baker Company was $3,450. Revenue earned by the company in Year 2 was $3,700, expenses paid during the period were $1,950, and dividends paid during the period were $1,350. Based on this information alone, retained earnings at the beginning of Year 2 was:

Retained earnings at the beginning of Year 2 was $3,050

Explanation:

Retained earnings at the end of the period is calculated by following formula:

Ending retained earnings = Beginning retained earnings  + Net income during the period  - Dividends paid

Beginning retained earnings = Ending retained earnings - (Net income during the period  - Dividends paid)

Net income of Baker Company in Year 2 = Revenue - Expenses = $3,700 - $1,950 = $1,750

In Year 2, dividends paid during the period were $1,350.

Retained earnings at the beginning of Year 2 = $3,450 - ($1,750 - $1,350) = $3,050

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