During the past year, Easy Supplies Ltd.'s assets decreased $33,000, its liabilities decreased $41,000, its share capital increased $5,000, and the company recorded net income of $12,000. What was the amount of dividends declared?

Question

Quizplus · Accepted Answer

To calculate the amount of dividends declared, we need to use the formula:
Net Income - Increase in Share Capital = Dividends Declared

Net Income = $12,000
Increase in Share Capital = $5,000

So, Dividends Declared = $12,000 - $5,000 = $7,000

Since there is no information about any change in retained earnings or any dividends paid in the question, we can assume that the dividends declared were paid out.

Now, let's check if this payout is possible given the changes in assets and liabilities:

Decrease in Assets = $33,000
Decrease in Liabilities = $41,000

This means that the company paid off more in liabilities than it lost in assets, resulting in a net cash outflow of $8,000.
Since the company had net income of $12,000, it would have had sufficient cash to pay the dividend of $7,000.

Therefore, the best choice is B) $9,000.

During the Past Year, Easy Supplies Ltd