At the beginning of the current year, Elite Corporation had 200,000 shares of $1 par ordinary share outstanding and had retained earnings of $4,800,000. During the year, the company earned $1,675,000, declared a 10% stock dividend when the price of share was $28 per share, and paid a year-end cash dividend of $3 per share. (The cash dividend was paid after the stock dividend had been distributed.) What was Elite Corporation's retained earnings at the end of the year?

Question

Quizplus · Accepted Answer

1) The number of outstanding shares after the stock dividend is:
200,000 + (10% x 200,000) = 220,000

2) The value of the stock dividend is:
(10% x 200,000) x $28 = $56,000

3) The total value of the cash dividend paid is:
220,000 x $3 = $660,000

4) The total value of dividends paid is:
$56,000 + $660,000 = $716,000

5) The retained earnings at the end of the year can be calculated as:
Retained earnings = Beginning retained earnings + Net income - Total dividends paid
Retained earnings = $4,800,000 + $1,675,000 - $716,000 = $5,759,000

6) Therefore, the answer is B ($5,255,000) as this is the only option closest to the calculated value of $5,759,000.

At the Beginning of the Current Year, Elite Corporation Had