Fyloff, Inc. would like to pay a dividend to its shareholders. It has only been in business a few years and does not yet have any retained earnings. However, it has a new product, which is breaking all sales records. This quarter, it anticipates about $3 million in earned surplus. It should be able to pay all of its bills as they become due. Under which of the following tests would Fyloff be able to pay a dividend? Explain each test.
a. Earned surplus test
b. Surplus test
c. Net asset test

Question

Fyloff, Inc. would like to pay a dividend to its shareholders. It has only been in business a few years and does not yet have any retained earnings. However, it has a new product, which is breaking all sales records. This quarter, it anticipates about $3 million in earned surplus. It should be able to pay all of its bills as they become due. Under which of the following tests would Fyloff be able to pay a dividend? Explain each test. 
a. Earned surplus test 
b. Surplus test 
c. Net asset test

Quizplus · Accepted Answer

The Answer of Fyloff, Inc. would like to pay a dividend to its shareholders. It has only been in business a few years and does not yet have any retained earnings. However, it has a new product, which is breaking all sales records. This quarter, it anticipates about $3 million in earned surplus. It should be able to pay all of its bills as they become due. Under which of the following tests would Fyloff be able to pay a dividend? Explain each test. 
a. Earned surplus test 
b. Surplus test 
c. Net asset test