Question

You are auditing Wanda's Widgets and see the following entry in the firm's accounting records. What can you conclude about this entry?

Retained Earnings $72,000
Dividends $72,000

Answer 1

This entry indicates that Wanda's Widgets has distributed $72,000 in dividends to its shareholders from its Retained Earnings.

Step-by-step explanation:

This entry indicates that Wanda's Widgets has distributed $72,000 in dividends to its shareholders from its Retained Earnings. Dividends are payments made by a company to its shareholders as a return on their investment in the company's stock. Retained Earnings, on the other hand, are the accumulated profits of the company that have not been distributed as dividends.

When a company pays dividends, it reduces its Retained Earnings and transfers the funds to the shareholders. In this case, Wanda's Widgets has distributed an amount equal to its Retained Earnings as dividends, indicating that the company has completely distributed its accumulated profits to the shareholders.

This entry also suggests that the company is not retaining any earnings for future growth or investment.