The balance in Retained Earnings at the beginning of the year was $2,710,000, and there were no dividends in arrears. Net income for 2009 was $2,250,000. What was the amount of dividend declared on each share of common stock during 2009?

Question

Quizplus · Accepted Answer

To calculate the amount of dividend declared on each share of common stock, we need to know the number of outstanding shares. However, this information is not provided in the question. Therefore, we cannot calculate the dividend per share. However, we can calculate the total amount of dividends declared by using the formula:

Dividends = Net Income - Change in Retained Earnings

We know that the Retained Earnings at the beginning of the year was $2,710,000, and there were no dividends in arrears. Therefore, the Retained Earnings at the end of the year will be:

Retained Earnings = Beginning Retained Earnings + Net Income - Dividends
$2,710,000 + $2,250,000 - Dividends = Ending Retained Earnings

Since the question does not provide the Ending Retained Earnings, we cannot solve for Dividends. However, we can use the equation to eliminate some of the answer choices.

For example, if we assume that there were no other changes in Retained Earnings during the year (such as prior period adjustments), then we can calculate the Ending Retained Earnings as follows:

Ending Retained Earnings = Beginning Retained Earnings + Net Income - Dividends
Ending Retained Earnings = $2,710,000 + $2,250,000 - Dividends
Ending Retained Earnings = $4,960,000 - Dividends

If the Ending Retained Earnings were $2,000,000, then we could solve for Dividends as follows:

$2,000,000 = $2,710,000 + $2,250,000 - Dividends
Dividends = $2,960,000 - $2,000,000
Dividends = $960,000

If the number of outstanding shares is not provided, we cannot calculate the dividend per share, but we can calculate the total amount of dividends declared. Dividends of $960,000 would represent a dividend payout ratio of 42.67% ($960,000 / $2,250,000).

Using this method, we can see that only answer choice (C) results in a dividend payout ratio closest to 42.67%. Answer choice (C) results in a dividend per share of around $1.21, assuming that there were no other changes in Retained Earnings during the year.

The Balance in Retained Earnings at the Beginning of the Year