Nelson Company had equity accounts in 2008 as follows: $\begin{array}{llcc}
\text {Common Stock (\$1 Par Value) } &\$120,000 \
\text {Retained Earnings } &\underline{32,000}\
\text {Total Shareholder's Equity } &\$152,000\

\end{array}$
Projected income is $150,000 and 40% of this amount will be paid out immediately as dividends.What will the ending retained earnings account be?
A)$90,000
B)$92,000
C)$122,000
D)$210,000
E)$242,000

Question

Nelson Company had equity accounts in 2008 as follows: $\begin{array}{llcc}
  \text {Common Stock (\$1 Par Value)  } &\$120,000  \
 \text {Retained Earnings  } &\underline{32,000}\
 \text {Total Shareholder's Equity  } &\$152,000\

\end{array}$
 Projected income is $150,000 and 40% of this amount will be paid out immediately as dividends.What will the ending retained earnings account be?
A)$90,000
B)$92,000
C)$122,000
D)$210,000
E)$242,000

Quizplus · Accepted Answer

The dividends to be paid out immediately are $150,000 × 40% = $60,000. Therefore, the remaining income that will be added to Retained Earnings is $150,000 - $60,000 = $90,000.

Adding this to the beginning balance of Retained Earnings gives us $32,000 + $90,000 = $122,000. Therefore, the ending balance of Retained Earnings is $122,000.

Nelson Company Had Equity Accounts in 2008 as Follows Projected Income Is $150,000 and 40% of This Amount Will