Question

When crossett corporation was organized in january 2018, it immediately issued 4,000 shares of $50 par, 6 percent, cumulative preferred stock and 50,000 shares of $20 par common stock. its earnings history is as follows: 2018, net loss of $35,000; 2019, net income of $125,000; 2020, net income of $215,000. the corporation did not pay a dividend in 2018?

Answer 1

Answer:

No, the Crossett Corporation cannot pay a dividend for 2018.

Explanation:

A corporation can only distribute dividends when it makes a profit or if it has profit reserves held under retained earnings account.

Since Crossett Corporation was recently organized in 2018, it had no retained earnings, and since it did not make a profit during that year, it cannot pay dividends for 2018.

Answer 2

Answer: No, the corporation did not pay a dividend in 2018.

Explanation: The company would not have paid a dividend in 2018 because they had a net loss. Dividends are the profit of the corporation being divided amongst the owners (shareholders). Since there was no profit there would not be dividends.