Question

Wendell Company provided the following pertaining to its recent year of operation:• Common stock with a $10,000 par value was sold for $50,000 cash.• Cash dividends totaling $20,000 were declared, of which $15,000 were paid.• Net income was $70,000• A 5% stock dividend resulted in a common stock distribution, which had a $5,000 par value and a $23,000 market value.• Treasury stock costing $9,000 was sold for $7,000.How much did Wendell's retained earnings increase during the recent year of operation? A. $32,000B. $45,000C. $29,000D.$27,000

Answer 1

Answer:

Option (D) $27,000

Explanation:

Data provided in the question:

Cash dividends declared = $20,000

Dividends paid = $15,000

Net income = $70,000

Market value of the stock dividend = $23,000

Treasury stock = $9,000

Selling cost of the treasury stock = $7,000

Now,

Retained earnings increase during the recent year of operation will be

= Net income - Cash dividends declared - Market value of the stock dividend

= $70,000 -  $20,000 - $23,000

= $27,000

Hence,

Option (D) $27,000