[Anonymous]

I’ve been going through some FAR questions and it seems to me that some questions can have a different answer than what Becker says.

For example, this one question asks “Company X declared and paid a liquidating dividend of $100,000. This distribution resulted in a decrease in:”

Answer: Paid-in-capital – YES, Retained Earnings – NO

So when I read that question, I’m guessing I’m supposed to assume RE is 0 to begin with? If RE was $50,000, wouldn’t it still be a liquidating dividend? RE would have been lowered by 50k and APIC would have lowered 50k as well. By definition, wouldn’t that be a $100,000 dividend that was liquidating in nature?

Just seems like there are a lot of these types of questions that can be interpreted many different ways. Thanks for any help!

[TheNeverEndingStory]

I agree sometimes the questions answers can seem ambiguous but more then half the time I find that it's due to not understanding what we are reading at times. For example, liquidating dividends are defined as occurring when dividends to shareholders exceed retained earnings. So retained earnings must be depleted before a dividend can be described as liquidating. Hope this helps.

BEC-Passed, Reg-Passed, Aud-Passed, FAR- Nov 30, 2010 -PASSED

[Author]

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