1. During the past year, Glanville Siding Company’s assets increased $2,000, its liabilities decreased $1,000, its...
1. During the past year, Glanville Siding Company’s assets increased $2,000, its liabilities decreased $1,000, its share capital increased $2,000, and its net income was $3,000. Dividends declared were:
a) $1,000.
b) $2,000.
c) $3,000.
d) $4,000.
e) None of the above.
Homework Answers
| Increase in assets | 2000 |
| (+) Decrease in liabilities | 1000 |
| (-) Increase in share capital | 2000 |
| Addition to retained earnings | 1000 |
| Net income | 3000 | |
| (-) Addition to retained earnings | 1000 | |
| Dividends declared | 2000 | option b |
To determine the dividends declared by Glanville Siding Company, we need to consider the changes in its retained earnings.
Retained earnings = Net income - Dividends
From the given information:
Net income = $3,000
Liabilities decreased by $1,000, which means the company had a gain of $1,000 (since a decrease in liabilities reduces expenses)
Share capital increased by $2,000
To calculate the change in retained earnings, we can use the following formula:
Change in retained earnings = Net income - Gain/Loss - Change in share capital
Change in retained earnings = $3,000 - $1,000 - $2,000 Change in retained earnings = $0
Since there is no change in retained earnings, it means that no dividends were declared by Glanville Siding Company.
Therefore, the correct answer is e) None of the above.
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