Question

At October 1, Arcade Fire Enterprises reported stockholders' equity of $35,000. During October, no stock was issued and the company earned net income of $9,000. If stockholders' equity at October 31 totals $37,000, what amount of dividends were paid during the month

Answer 1

Answer: The amount of dividend paid during the month is $7,000.

Explanation: You need to prepare a simple movement schedule (an extract from the statement of changes in equity) to solve this question as follows:

Arcade Fire Enterprises

Stockholders' equity, begining of the month              $35,000

Net income (addition)                                                        9,000

Dividend paid                                                                   (XXXX)

Stockholders' equity, end of the month                        37,000

To get XXXX, you need to make it the subject of the formula:

$35,000 + $9,000 - XXXX = $37,000

$44,000 - XXXX = $37,000

XXXX = $44,000 - $37,000

XXXX = $7,000

Note that dividends are always paid out of stockholders' equity.