Question

The ending Retained Earnings balance of Lamber Inc. increased by $1.5 million from the beginning of the year. The company's net income earned during the year is $3.5 million. What is the amount of dividends Lambert Inc. declared and paid?

a. $1.5 million
b. $3.5 million
c. $2.0 million
d. $5.0 million

Answer 1

Lambert Inc. declared and paid $2.0 million in dividends. This is calculated using the company's net income of $3.5 million and the $1.5 million increase in Retained Earnings.

Step-by-step explanation:

The amount of dividends Lambert Inc. declared and paid can be calculated by looking at the change in Retained Earnings and comparing this with the net income earned during the year. The formula to determine the amount of dividends paid is:

Dividends Paid = Net Income - (Ending Retained Earnings - Beginning Retained Earnings)

For Lambert Inc., the net income is $3.5 million and the increase in retained earnings is $1.5 million. Thus:

Dividends Paid = $3.5 million - $1.5 million = $2.0 million

Therefore, the correct answer is c. $2.0 million.