Question

The following Information pertains to Alpha Computing at the end of 2021 Liabilities Net Income Common Stock $965,000 $462,500 $182,500 $385,000 Alpha Computing's Retained Earnings account had a zero balance at the beginning of 2021. What amount of dividends did the company declare in 2021? $66,000 $67,000 $68,000 $65.000

Answer 1

Solution:

Calculation of Closing balance of Retained Earnings :

As per the basic accounting equation

Assets = Liabilities + Common Stock + Retained Earnings

As per the Information given in the question we have

Assets = $ 965,000 ; Liabilities = $ 462,500   ; Common Stock = $ 385,000 ;

Retained Earnings = To find

Applying the above information in the equation we have

$ 965,000 = $ 462,500 + $ 385,000 + Retained Earnings

$ 965,000 = $ 847,500 + Retained Earnings

$ 965,000 - $ 847,500 = Retained Earnings

$ 117,500 = Retained Earnings

Thus the closing balance of Retained Earnings = $ 117,500

Calculation of Dividends paid during the year :

The formula for calculating the Dividends paid during the year is

Dividends paid during the year = Opening balance of Retained Earnings + Net Income earned during the year - Closing balance of Retained Earnings

As per the information available we have

Opening balance of Retained Earnings = $ 0 ; Net Income earned during the year = $ 182,500 ;

Closing balance of Retained Earnings = $ 117,500   ; Dividends paid during the year = To find

Applying the above information in the equation we have

Dividends paid during the year = $ 0 + $ 182,500 - $ 117,500

= $ 65,000

Thus the Dividends paid by Alpha Computing during the year 2021 = $ 65,000

The solution is option 4 = $ 65,000