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The balance in retained earnings at December 31, 2010 was $720,000 and at December 31, 2011 was $582,000.Net income for 2011 was $500,000.A share dividend was declared and distributed which increased sharecapital $200,000 and share premium $110,000.A cash dividend was declared and paid.
-The amount of the cash dividend was

Question

Quizplus · Accepted Answer

Retained earnings at the end of 2010: $720,000
Add: Net income for 2011: $500,000
Subtract: Share dividend: ($200,000 + $110,000) = $310,000
Retained earnings at the end of 2011: $910,000 - $310,000 = $600,000

To find the amount of cash dividend:
Retained earnings at end of 2011: $600,000
Less: Retained earnings at end of 2010: $720,000
Equals: Decrease in retained earnings: ($120,000)

Since the decrease in retained earnings was due to the payment of both share dividend and cash dividend, we need to subtract the share dividend to get the amount of cash dividend.
Cash dividend = Decrease in retained earnings - Share dividend
Cash dividend = $120,000 - $310,000 = ($190,000)
Therefore, the amount of the cash dividend was $190,000, which is equivalent to answer choice B.

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