Financial reporting of net losses and retained earnings A recent annual report of Dobbs, Inc., reported a net loss of approximately $63 million and retained earnings of approximately $1.6 billion

(a) Which financial statement shows computation of the $63 million net loss?
(b) Which financial statement includes the retained earnings figure of $1.6 billion?
(c) Explain how it is possible for Dobbs to report both a net loss of $63 million and retained earnings of $1.6 billion in a single set of financial statements.

What will be an ideal response?

(a) Income statement (or statement of operations).
(b) Balance sheet (or statement of retained earnings, although this statement is not introduced until the next chapter).
(c) Net loss represents the decrease in owners' equity resulting from unprofitable operations for a single period. Dobbs, Inc.'s operations generated a net loss of $63 million for the current year. Retained earnings represents the cumulative net income and losses over the entire life of the business, less all amounts that have been distributed to owners (stockholders) as dividends. Since Dobbs, Inc., began operations, the cumulative amount of income in excess of amounts paid out as dividends amounts to $1.6 billion.