Brooks Co. booked the following journal entry to record a dividend received from Kline Inc.: Debit...
Brooks Co. booked the following journal entry to record a dividend received from Kline Inc.:
| Debit (Dr.) | Credit (Cr.) | |
| Cash | $25,000 | |
| Dividend Income | $17,500 | |
| Investment in Kline | $7,500 |
If Brooks has a 5% ownership interest in Kline, then Kline:
a. paid dividends of $350,000
b. had retained earnings of $500,000
c. had retained earnings in excess of dividends paid by $50,000
d. paid dividends in excess of retained earnings by $150,000
Homework Answers
Dividend is always paid at face value of share by the company.
Since Brooks Co is having 5% ownership in Kline, so Brooks Co will receive dividend to the extent of 5% only out of the total dividend paid by Kline;
Accordingly, total dividend paid by Kline = $17,500/5 ×100 = $350,000
So correct option is (a) i.e. Kline Inc paid dividends of $350,000.
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