Question

Adella Corp. has outstanding 50,000 shares of $1 par value common stock as well as 10,000...

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

$660,000

$760,000

$600,000
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Answer #1

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

NOTE:- Please rate the answer and for any problem regarding the answer please ask in the comment section.

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