At October 1, Smithson Enterprises reported equity of $210,000. During October, capital shares of $12,000 were issued and the company earned net income of $36,000. If equity at October 31 totals $240,000, what amount of dividends were paid during the month?

Question

Quizplus · Accepted Answer

The increase in equity during the month is the sum of the capital shares issued and net income earned: 
Increase in Equity = $12,000 + $36,000 = $48,000

To find out the amount of dividends paid, we need to subtract this increase from the change in equity:

Change in Equity = Ending Equity - Beginning Equity 
$240,000 - $210,000 = $30,000

Dividends Paid = Change in Equity - Increase in Equity 
Dividends Paid = $30,000 - $48,000 = -$18,000

Since the dividends paid cannot be negative, it means that no dividends were paid during the month. The answer is B, $0.

At October 1, Smithson Enterprises Reported Equity of $210,000