Question

At the beginning of 2013, Flaherty Company had retained earnings of $250,000.

During the year Flaherty reported net income of $100,000, sold treasury stock at a "gain" of $36,000, declared a cash dividend of $60,000, and declared and issued a small stock dividend of 3,000 shares ($10 par value) when the fair value of the stock was $20 per share.

The amount of retained earnings available for dividends at the end of 2013 was:

a. $230,000.b. $260,000.c. $266,000.d. $296,000.

Answer 1

Net income for the year ended 2013

$

Reported net income 100,000

Gain on sales of treasury stock 36,000

Cash dividend paid (60,000)

Net income at 2013 year-end 76,000

Statement of Retained Earnings for the year ended 2013

$

Retained earnings at the beginning 250,000

Less: Stock dividend (3,000 x $10) 30,000

220,000

Add: Net income for the year 76,000

Retained earnings at the end 296,000

Step-by-step explanation:

There is need to calculate the net income at the end of the year, which equals reported net income plus gain on sales of treasury stocks minus cash dividend paid. Thereafter, we will determine the retained earnings available for dividend at the end of 2013 by considering the retained earnings at the beginning minus stock dividend plus the net income at year-end.