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If the company issues common stock of $5,200 and pay dividends of $38,900, how much is...

If the company issues common stock of $5,200 and pay dividends of $38,900, how much is net income (loss)?

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Answer #2

Payment of Dividends are only from income earned during the year of payment of dividends or previous years accumulated incomes that is retained earnings.

Note that , no dividend shall be paid from paid in capital.

So there are two scenarios:

Scenario 1: there is no balance in retained earnings: If this is the first year of operations or there are no surplus in retained earnings, Net income = $38,900.

Scenario 2: If there is sufficient balance in retained earnings then amount of net income calculated after considering dividend amount whether paid from retained earnings or not.

answered by: anonymous
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