Question

Car and Auto Sisters had retained earnings of $18,000 on the balance sheet but disclosed in the footnotes that $3,000 of retained earnings was restricted for plant expansion and $1,000 was restricted for bond repayments. Cash of $2,000 had been set aside for the plant expansion. How much of retained earnings is available for dividends?

Answer 1

The correct answer is $14,000.

Step-by-step explanation:

According to the scenario, the given data are as follows:

Total Retained earning = $18,000

Restricted for plant expansion = $3,000

restricted for bonds repayment = $1,000

So, we can calculate the remaining retained earning by using following formula:

Remaining Retained earning = Total retained earning - ( Restricted for plant expansion + restricted for bonds repayment )

by putting the value, we get

Remaining retained earning = $18,000 - ( $3,000 + $1,000)

= $14,000