Superior has provided the following information for its recent year of operation: The common stock account balance at the beginning of the year was $20,000 and the year-end balance was $25,000.
The additional paid-in capital account balance increased $2,500 during the year.
The retained earnings balance at the beginning of the year was $75,000 and the year-end balance was $91,000.
Net income was $26,000.
-
How much were Superior's dividend declarations during its recent year of operation?
A)$10,000.
B)$42,000.
C)$26,000.
D)The dividend declarations cannot be determined from the information provided.

Question

Quizplus · Accepted Answer

Dividends = (Ending Retained Earnings - Beginning Retained Earnings + Net Income) - Additional Paid-in Capital
Dividends = ($91,000 - $75,000 + $26,000) - $2,500
Dividends = $40,500 - $2,500
Dividends = $38,000

However, dividends cannot exceed the amount of retained earnings available at the beginning of the year, which is $75,000. Therefore, the maximum amount of dividends that can be declared is $75,000 - $25,000 (ending common stock balance) = $50,000. Since $38,000 is less than $50,000, the answer is A) $10,000.

Superior Has Provided the Following Information for Its Recent Year