On January 2, 2011 the board of directors of Gimli Mining Corporation declared a cash dividend of $1,200,000 to stockholders of record on January 18, 2011, and payable on February 10, 2011. The dividend is permissible by law in Gimli's state of incorporation. Selected data from Gimli's December 31, 2010, balance sheet follow:

The $1,200,000 dividend includes a liquidating dividend of

Question

On January 2, 2011 the board of directors of Gimli Mining Corporation declared a cash dividend of $1,200,000 to stockholders of record on January 18, 2011, and payable on February 10, 2011. The dividend is permissible by law in Gimli's state of incorporation. Selected data from Gimli's December 31, 2010, balance sheet follow:

The $1,200,000 dividend includes a liquidating dividend of

Quizplus · Accepted Answer

To determine the amount of liquidating dividend, we need to calculate the retained earnings available for dividend distribution. Retained earnings = $3,000,000 - $1,500,000 - $500,000 = $1,000,000. However, since Gimli has a legal capital of $1,200,000, only $700,000 of the dividend can be classified as a regular dividend. The remaining $500,000 is classified as a liquidating dividend. Therefore, the answer is B) $700,000.

On January 2, 2011 the Board of Directors of Gimli