Determining (Calculating) Retained Earnings and Net Income Using Only the Balance Sheet

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Why wouldnt the cash dividends be taken out of the difference in retained earnings? Why wouldnt it be 27, 000 -12, 000? I was following but I don't understand why we add 12000 to 27000 if dividends are a decrease in equity. Cant cash dividends be paid from retained equity? Causing it to decrease? Can someone help me understand please?

simonealbritton