Question

Hutchinson Company had retained earnings of $15,000 on the balance sheet but disclosed in the footnotes that $2,000 of retained earnings was restricted for plant expansion and $1,000 was restricted for bond repayments. Cash of $2,000 had been set aside for the plant expansion. How much of retained earnings is available for dividends?a. $12,000.b. $13,000.c. $15,000.d. $10,000.

Answer 1

Answer:

a. $12,000

Explanation:

The Cash of $2,000 had been set aside for the plant expansion does not affect the unrestricted retained earnings. it is just confirms that they have restricted the $2,000 of retained earnings for the plant expansion, in form of cash.

$3,000 of the retained earnings is restricted ($2,000 for plant expansion and $1,000 for bond repayments)  

retained earnings is available for dividends = $15,000 - $3,000

= $12,000

Therefore, The retained earnings is available for dividends is $12,000