Assume beginning and ending total assets of $80,000 and $120,000, respectively. Total liabilities...

Question:

Assume beginning and ending total assets of $80,000 and $120,000, respectively. Total liabilities increased by $20,000, and net income was $90,000. If no additional capital stock was issued, how much were the dividends?

Dividends:

The dividend is a distribution of earning made to shareholders in portion to the number of shares owned. It is considered to be the right of shareholders. It is paid out of profit after tax. The face value of dividend declares as a percentage.

Answer and Explanation:

{eq}\begin{align*} \rm\text{Increase in total asset}& = \rm\text{Increase in total liabilities} + \rm \text{Increase in equity}\left(\rm\text{Retained earning}\right)\\ \left(\$ 120,000 - \$ 80,000\right) & = \$ 20,000\rm\text{Increase in equity}\left(\rm\text{Retained earning}\right)\\ \$ 40,000 &= \$ 20,000 + \rm\text{Increased in equity}\left(\rm\text{Retained earnings}\right)\\\rm\text{Increased in equity}\left(\rm\text{Retained earnings}\right) &= \$ 20,000\\ \end{align*} {/eq}

{eq}\begin{align*} \rm\text{Increase in equity} \left(Retained earnings\right)&= \rm\text{Net Income}- \rm\text{Dividend}\\\$ 20,000 &=\$ 90,000\rm\text{Dividend}\\ \rm\text{Dividend}&= \$ 90,000 - \$ 20,000\\ \rm\text{Dividend} &= \$ 70,000 \end{align*} {/eq}


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Dividend: Definition & Overview

from GMAT Prep: Tutoring Solution

Chapter 1 / Lesson 8
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