Question

On 12/31/18, Hite Industries reported retained earnings of $475,000 on its balance sheet, and it reported that it had $135,000 of net income during the year. On its previous balance sheet, at 12/31/17, the company had reported $445,000 of retained earnings. No shares were repurchased during 2018. How much in dividends did the firm pay during 2018?

Answer 1

$105,000

Step-by-step explanation:

to determine the dividends paid, we need to determine by how much did retained earnings decrease during 2018:

distributed dividends = ending balance retained earnings + net income 2018 - beginning balance retained earnings = $445,000 + $135,000 - $475,000 = $105,000

Distributed dividends always reduce retained earnings, since the money used to pay for them must come out of that account. If there are no retained earnings, then no dividends can be distributed.

Answer 2

Hite Industries paid dividends amounting to $105,000 during 2018.

$105,000 represents the net income minus the change in retained earnings.

The change in retained earnings is the difference between the closing balance and the opening balance, i.e. $30,000 (475,000 - 445,000).

The net income is $135,000. When $30,000 is subtracted from it, the result is $105,000, representing the dividend paid out for the year.

Step-by-step explanation:

Dividend is paid out from net income for the years, otherwise called Retained Earnings. This means that Retained Earnings are accumulated net income over the years.