Question

The year-end 2018 balance sheet of Brandex Inc. listed common stock and other paid-in capital at $1,400,000 and retained earnings at $3,700,000. The next year, retained earnings were listed at $4,000,000. The firm’s net income in 2019 was $930,000. There were no stock repurchases during the year. What were the dividends paid by the firm in 2019?

Answer 1

Answer:

The firm paid $630000 dividends in 2019

Explanation:

Retained earnings is the amount of net income that is not distributed to stockholders and is ploughed back into the business. It is a capital reserve account and appears in the equity section of the Balance Sheet. To determine the amount of Dividends, we will trace the change in Retained earnings and deduct the increase in retained earnings amount from the Net Income to arrive at dividends for the year.

Increase in Retained earnings = 4000000 - 3700000  =  $300000

Thus, out of the Net Income of $930000 earned in 2019, $300000 was transferred to retained earnings. The remaining was paid as dividends.

The dividends in 2019 are = 930000 - 300000 = $630000