Wilco Company reports the following: $$\begin{array} { | l | c | c | }
\hline & 2005 & 2004 \
\hline \text { Retained Earnings } & \$ 2,000,000 & \$ 1,300,000 \
\hline \text { Common Stock } & \$ 500,000 & \$ 500,000 \
\hline \text { Paid-in Capital } & \$ 3,000,000 & \$ 3,000,000 \
\hline \text { Net Income for year } & \$ 900,000 & \$ 400,000 \
\hline
\end{array}$$ Dividend payout ratio for 2005 was:
A) 27%
B) 12%
C) 22.2%
D) Not determinable

Question

Wilco Company reports the following: $$\begin{array} { | l | c | c | } 
\hline & 2005 & 2004 \
\hline \text { Retained Earnings } & \$ 2,000,000 & \$ 1,300,000 \
\hline \text { Common Stock } & \$ 500,000 & \$ 500,000 \
\hline \text { Paid-in Capital } & \$ 3,000,000 & \$ 3,000,000 \
\hline \text { Net Income for year } & \$ 900,000 & \$ 400,000 \
\hline
\end{array}$$ Dividend payout ratio for 2005 was:
A) 27%
B) 12%
C) 22.2%
D) Not determinable

Quizplus · Accepted Answer

The dividend payout ratio is the portion of net income paid out as dividends, expressed as a percentage. It can be calculated using the formula:

Dividend Payout Ratio = Dividends / Net Income

Since the problem does not provide information on the dividends paid, we cannot directly calculate the dividend payout ratio. However, we can use the information provided to infer that the company has retained earnings of $2,000,000 for 2005, compared to $1,300,000 for 2004. This means that the company has retained more earnings in 2005, which suggests that they may have paid out less dividends or retained more profits.

Therefore, we can conclude that the dividend payout ratio for 2005 is likely lower than the previous year. Since the only answer choice that represents a lower ratio than the previous year is C (22.2%), we can choose it as the best option.

Wilco Company Reports the Following Dividend Payout Ratio for 2005 Was: A) 27% B) 12

Wilco Company Reports the Following Dividend Payout Ratio for 2005 Was:
A) 27%
B) 12