Help with Wiley Question

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    Topic
  • #184766
    Anonymous
    Inactive

    On January 5, year 2, Sardi Minerals Corp. declared a cash dividend of $600,000 to stockholders of record on January 21, year 2, and payable on February 11, year 2. The dividend is permissible under the laws of Sardi’s state of incorporation. The following data pertain to year 1:

    Net income for year ended 12/31/Y1 $190,000

    Additional paid-in capital, 12/31/Y1 675,000

    Retained earnings, 12/31/Y1 425,000

    The $600,000 dividend includes a liquidating dividend of

    The $600,000 dividend includes a liquidating dividend of

    $0

    $175,000

    $410,000

    $485,000

    I put 0 but the answer is $175…can someone please explain why the net income isn’t closed to retain earnings in this question…is Wiley wrong?

Viewing 4 replies - 1 through 4 (of 4 total)
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  • #542277
    Anonymous
    Inactive

    I guess maybe they're assuming that that RE number has the Net Income already closed out into it? Either way, it's a poorly worded question in my opinion…

    #542312
    Anonymous
    Inactive

    I guess maybe they're assuming that that RE number has the Net Income already closed out into it? Either way, it's a poorly worded question in my opinion…

    #542279
    stoleway
    Participant

    @AlexDernfel

    Cash dividend declaration reduces RE and increase liability. In summary, cash dividends are paid out of RE.

    declaring dividends in excess of RE will liquidate some of the shareholders interest.

    Net income is already closed to retained earning, so ignore the net income and use the ending RE

    Ending RE= Beg RE + Net income – Dividends

    You already have your ending RE which is $425,000.

    REG -63│ 84!!
    BEC- 59│70│ 71 │78!
    AUD- 75!
    FAR- 87!

    Mass-CPA

    #542314
    stoleway
    Participant

    @AlexDernfel

    Cash dividend declaration reduces RE and increase liability. In summary, cash dividends are paid out of RE.

    declaring dividends in excess of RE will liquidate some of the shareholders interest.

    Net income is already closed to retained earning, so ignore the net income and use the ending RE

    Ending RE= Beg RE + Net income – Dividends

    You already have your ending RE which is $425,000.

    REG -63│ 84!!
    BEC- 59│70│ 71 │78!
    AUD- 75!
    FAR- 87!

    Mass-CPA

Viewing 4 replies - 1 through 4 (of 4 total)
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