The ABC Co. has its sales of $264,200, costs of $185,600, and interest paid of $11,200. The...

Question:

The ABC Co. has sales of {eq}\$264,200 {/eq}, costs of {eq}\$185,600 {/eq}, and interest paid of {eq}\$11,200 {/eq}. The depreciation expense is {eq}\$36,900 {/eq} and the tax rate is {eq}34 \% {/eq}. At the beginning of the year, the firm had retained earnings of {eq}\$171,500 {/eq} and common stock of {eq}\$300,000 {/eq}. At the end of the year, the firm has retained earnings of {eq}\$164,700 {/eq} and common stock of {eq}\$350,000 {/eq}. What is the amount of the dividends paid for the year?

Dividends paid:

Dividends refer to the amount paid to the stockholders of the company against a sum of money invested by them in the company. It is paid from the income after payment of all interests and taxes.

Answer and Explanation:

Let us first prepare a short income statement for the company:

Particulars Amount
Sales 264,200.00
Less: Costs 185,600.00
Less: Depreciation 36,900.00
Less: Interest paid 11,200.00
Earnings before tax 30,500.00
Less: Tax @ 34% 10,370.00
Net Income 20,130.00

Now,

Addition to retained earnings
= Closing balance of retained earnings - Opening balance of retained earnings
= $164,700.00 - $171,500.00
= -$6,800.00

Dividend paid for the year
= Net Income - Addition to retained earnings
= $20,130.00 - (-$6,800.00)
= $26,930.00


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Cash Dividends & Dividend Payment

from Finance 101: Principles of Finance

Chapter 16 / Lesson 1
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