Adella Corp. has outstanding 50,000 shares of $1 par value common stock as well as 10,000 shares of 6%, $100 par value cumulative preferred stock. At the beginning of the year, the balance in retained earnings was $500,000, and one year’s dividends were in arrears. Net income for the current year is $260,000. Compute the balance in retained earnings at the end of the year if Adella Corp. pays a dividend of $2 per share on its commons tock this year.
$540,000 |
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$660,000 |
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$760,000 |
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$600,000 |
Preferred shares dividend= 10,000*$100*6%
= $60,000
Total preferred dividend= Dividend in arrears+Current year dividend
= $60,000+60,000= $120,000
Common shares dividend= 50,000*$2= $100,000
Total dividend= Total preferred dividend+Common shares dividend
= $120,000+100,000
= $220,000
Ending balance in retained earnings= Beginning balance in retained earnings+Net income-Total dividend
= $500,000+260,000-220,000
= $540,000
So, the answer is option A) $540,000
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