Question

The balance in retained earnings on December 31, 2017, was $1435000 and on December 31, 2018, it was $1160000. Net income for 2018 was $1093000. A stock dividend was declared and distributed which increased common stock $495000 and paid-in capital $119000. A cash dividend was declared and paid.
The amount of the cash dividend was
a. $496,000.
b. $556,000.
c. $776,000.
d. $1,276,000.

Answer 1

Answer:

b. $556,000.

Explanation:

Retained Earning is an account where all the earnings of the company accumulate and dividend is also paid from this account because it represents the amount the earning associated with the stockholders of the company.

December 31, 2018 Balance of Retained Earning = December 31, 2017 Balance of Retained Earning + Income for the year - Dividend Paid / Declared during the year.

$1,164,000 = $1,440,000  + $1,000,000 - Dividend Paid / Declared during the year.

$1,164,000 = $2,440,000 - Dividend Paid / Declared during the year.

Dividend Paid / Declared during the year = $2,440,000 - $1,164,000

Dividend Paid / Declared during the year = $1,276,000

Stock Dividend Paid - $500,000 + $220,000 = $720,000

Cash Dividend Paid = $1,276,000 - $720,000 = $556,000