Question

Bagwell's net income for the year ended December 31, Year 2 was $175,000. Information from Bagwell's comparative balance sheets is given below.

At December 31: Year 2 Year 1
Common Stock, $5 par value $500,000 $450,000
Paid-in capital in excess of par 948,000 853,000
Retained earnings 688,000 582,000
Compute the cash paid for dividends during Year 2:________.
a) $79,000
b) $201,000
c) $95,000
d) $50,000
e) $69,000

Answer 1

Cash paid for dividends during Year 2 is $69000. So option e is the correct answer

Step-by-step explanation:

The net income earned by a company has two purposes initially. It is either paid out as dividends or retained in the business as retained earnings or both. Thus, to calculate the amount of dividends paid in Year 2, we need to calculate the change in retained earnings and deduct/add it to the net income to calculate the cash dividends paid.

Cash dividends paid in Year 2,

Dividends = Opening retained earnings + Net Income - Closing retained earnings

Dividends = 582000 + 175000 - 688000

Dividends = $69000