[Anonymous]

On January 5, year 2, Sardi Minerals Corp. declared a cash dividend of $600,000 to stockholders of record on January 21, year 2, and payable on February 11, year 2. The dividend is permissible under the laws of Sardi’s state of incorporation. The following data pertain to year 1:

Net income for year ended 12/31/Y1 $190,000

Additional paid-in capital, 12/31/Y1 675,000

Retained earnings, 12/31/Y1 425,000

The $600,000 dividend includes a liquidating dividend of

The $600,000 dividend includes a liquidating dividend of

$0

$175,000

$410,000

$485,000

I put 0 but the answer is $175…can someone please explain why the net income isn’t closed to retain earnings in this question…is Wiley wrong?

[Anonymous]

I guess maybe they're assuming that that RE number has the Net Income already closed out into it? Either way, it's a poorly worded question in my opinion…

[Anonymous]

I guess maybe they're assuming that that RE number has the Net Income already closed out into it? Either way, it's a poorly worded question in my opinion…

[stoleway]

@AlexDernfel

Cash dividend declaration reduces RE and increase liability. In summary, cash dividends are paid out of RE.

declaring dividends in excess of RE will liquidate some of the shareholders interest.

Net income is already closed to retained earning, so ignore the net income and use the ending RE

Ending RE= Beg RE + Net income – Dividends

You already have your ending RE which is $425,000.

REG -63│ 84!!
BEC- 59│70│ 71 │78!
AUD- 75!
FAR- 87!

Mass-CPA

[stoleway]

@AlexDernfel

Cash dividend declaration reduces RE and increase liability. In summary, cash dividends are paid out of RE.

declaring dividends in excess of RE will liquidate some of the shareholders interest.

Net income is already closed to retained earning, so ignore the net income and use the ending RE

Ending RE= Beg RE + Net income – Dividends

You already have your ending RE which is $425,000.

REG -63│ 84!!
BEC- 59│70│ 71 │78!
AUD- 75!
FAR- 87!

Mass-CPA

[Author]

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