Alexandra Investments had equity accounts in 2008 as follows: $\begin{array}{llcc}
\text {Common Stock (\$1 Par Value) } &\$20,000 \
\text {Retained Earnings } &\underline{250,000}\
\text {Total Shareholder's Equity } &\$270,000\

\end{array}$

Projected income is $200,000 and 20% of this amount will be paid out immediately as dividends.What will the ending retained earnings account be?
A)$160,000
B)$250,000
C)$270,000
D)$410,000
E)$470,000

Question

Alexandra Investments had equity accounts in 2008 as follows: $\begin{array}{llcc}
  \text {Common Stock (\$1 Par Value)  } &\$20,000  \
 \text {Retained Earnings  } &\underline{250,000}\
 \text {Total Shareholder's Equity  } &\$270,000\

\end{array}$

Projected income is $200,000 and 20% of this amount will be paid out immediately as dividends.What will the ending retained earnings account be?
A)$160,000
B)$250,000
C)$270,000
D)$410,000
E)$470,000

Quizplus · Accepted Answer

We can start by calculating the amount of dividends that will be paid out immediately:

Dividend = projected income x dividend payout ratio
Dividend = $200,000 x 20% = $40,000

To find the ending retained earnings account, we need to subtract the dividend from the projected income and add it to the beginning retained earnings:

Ending retained earnings = beginning retained earnings + net income - dividends
Ending retained earnings = $250,000 + $160,000 - $40,000
Ending retained earnings = $370,000

Therefore, the best choice is D) $370,000.

Alexandra Investments Had Equity Accounts in 2008 as Follows Projected Income Is $200,000 and 20% of This Amount Will