New Orleans Chemicals Company follows the indirect method to prepare its statement of cash flows.Refer to the following portion of the comparative balance sheet: $\begin{array}{c}
\text {New Orleans Chemicals Company }\
\text {Comparative Balance Sheet }\
\text {December 31,2018 and 2017}\
\begin{array}{|l|r|r|r|}
\hline&2018 & 2017 & \text { Increase/(Decrease) }\
\hline \text { Common Stock } & \$ 30,000 & \$ 2200 & \$ 27,800 \
\hline \text { Retained Earnings } & 155,000 & 90,000 & 65,000 \
\hline \text { Treasury Stock } & (8500) & (5500) & (3000) \
\hline \text { Total Equity } & \$ 176,500 & \$ 86,700 & \$ 89,800 \
\hline
\end{array}\end{array}$
Net Income for 2018 was $92,000.
Based on the above information,determine the amount of dividends declared during 2018.
A) $3000
B) $92,000
C) $65,000
D) $27,000

Question

New Orleans Chemicals Company follows the indirect method to prepare its statement of cash flows.Refer to the following portion of the comparative balance sheet: $\begin{array}{c}
\text {New Orleans Chemicals Company }\
\text {Comparative Balance Sheet }\
\text {December 31,2018 and 2017}\ 
\begin{array}{|l|r|r|r|}
\hline&2018 & 2017 & \text { Increase/(Decrease) }\ 
\hline \text { Common Stock } & \$ 30,000 & \$ 2200 & \$ 27,800 \
\hline \text { Retained Earnings } & 155,000 & 90,000 & 65,000 \
\hline \text { Treasury Stock } & (8500) & (5500) & (3000) \
\hline \text { Total Equity } & \$ 176,500 & \$ 86,700 & \$ 89,800 \
\hline
\end{array}\end{array}$
 Net Income for 2018 was $92,000.
Based on the above information,determine the amount of dividends declared during 2018.
A) $3000
B) $92,000
C) $65,000
D) $27,000

Quizplus · Accepted Answer

The amount of dividends declared can be calculated by starting with the change in retained earnings. The retained earnings increased by $65,000, but this includes the net income of $92,000. To find the dividends declared, subtract the net income from the increase in retained earnings: $65,000 - $92,000 = -$27,000. Since dividends are a distribution of earnings, the negative sign indicates that $27,000 was distributed as dividends.

New Orleans Chemicals Company Follows the Indirect Method to Prepare