Question

The balance in retained earnings at December 31, 2017 was $1,440,000 and at December 31, 2018 was $1,164,000. Net income for 2018 was $1,000,000. A stock dividend was declared and distributed which increased common stock $500,000 and paid-in capital $220,000. A cash dividend was declared and paid. Reference: Ref 23-4 The amount of the cash dividend was A. $496,000. B. $1,276,000. C. $556,000. D. $776,000.

Answer 1

Answer:

The correct answer is Option C.

Explanation:

Movement in retained earnings is as follows:

Balance, beginning of the year                             $1,440,000

Net income                                                             $1,000,000

Stock dividend declared and distributed             ($720,000)

Cash dividend paid                                                       (XXXX)

Balance, end of the year                                        $1,164,000

The cash dividend paid is a balancing figure and it is to be subtracted from the retained earnings. The amount is $556,000. That is, $1,164,000 - $1,720,000.