Question

Superior has provided the following information for its recent year of operation: The common stock account balance at the beginning of the year was $20,000 and the year-end balance was $25,000. The additional paid-in capital account balance increased $2,500 during the year. The retained earnings balance at the beginning of the year was $75,000 and the year-end balance was $91,000. Net income was $26,000.
How much were Superior's dividend declarations during its recent year of operation?
A. 10,000
B. 42,000
C. 26000
D. The dividend declarations can not be determined given the above information.

Answer 1

Answer:

A. 10,000

Explanation:

The dividends declared during the company's recent year can be viewed from the perspective of changes in retained earnings since the  end of the year retained earnings are a function of the beginning of the year retained earnings, net income and dividends as captured in the formula below:

closing retained earnings=beginning retained earnings+net income-dividends

closing retained earnings=$91,000.

beginning retained earnings=$75,000

net income=$26,000

dividends=the unknown

$91,000=$75,000+$26,000-dividends

dividends=$75,000+$26,000-$91,000

dividends=$10,000