Question

The Retained Earnings balance was $23,100 on January 1. Net income for the year was $18,400. If Retained Earnings had a credit balance of $24,200 after closing entries were made for the year, and if additional stock of $5,400 was issued during the year, what was the amount of dividends declared during the year?

Answer 1

$17,300

Step-by-step explanation:

The retained earnings represents the amount paid to the shareholders out of the net income. The net income/loss balance over the period of existence of the company gives the retained earnings balance.

As such, a net income increases the retained earnings, a net loss reduces it. Dividend declared and paid decreases the retained earnings account balance.

For retained earnings,

Opening balance + Net income - Dividend declared = Closing balance

$23,100 + $18,400 - Dividend declared = $24,200

Dividend declared = $23,100 + $18,400 - $24,200

= $17,300