Question

In Q1 2018, CNA Companies reports the following transactions:

Capital expenditures of $15 million
Loss on sale of equipment of $6 million
Debt principal repayment of $8 million
Preferred dividend of $2 million
Common dividend of $3 million
Share buyback of $4 million
Ignoring the effect of taxes, what is the impact of these transactions on retained earnings?

A. ($9 million)
B. ($11 million)
C. ($16 million)
D. ($38 million)

Answer 1

Answer: B. ($11 million)

Step-by-step explanation:

Out of the listed transactions there, these are the ones that can be taken out of Retained Earnings.

Loss on sale of equipment of $6 million

Preferred dividend of $2 million

Common dividend of $3 million

So calculating would be,

= - 6 - 2 - 3

= -$11 million

This means that Retained Earnings will reduce by -$11 million making option B correct.