Question

Fashion, Inc. had a Retained Earnings balance of $13,000 at December 31, 2018. The company had an average annual income of $6,500 over the next 3 years, and an ending Retained Earnings balance of $13,000 at December 31, 2021. What was the total amount of dividends paid over the last three years?

1.$18,750.
2.$19,500.
3.$21,000.
4.$22,500.

Answer 1

2.$19,500.

Step-by-step explanation:

The computation of the amount of dividend is shown below:

As we know that

Ending retained earning balance = Beginning retained earning balance + net income - cash dividend paid

$13,000 = $13,000 + $6,500 × 3 years - cash dividend paid

So, the cash dividend paid is $19,500

We simply applied the above formula

Hence, the correct option is 2.