1. The stockholder’s equity of Innovative Fitness Products Inc. at December 31,
ID: 2419805 • Letter: 1
Question
1. The stockholder’s equity of Innovative Fitness Products Inc. at December 31, 2013 appears below:
Common Stock, $8 par value, 200,000 shares
authorized, 120,000 shares issued and outstanding $960,000
Paid in Capital in excess of par value $500,000
Retained earnings $740,000
During 2014, the following transactions occurred:
June 15: Declared a 10% stock dividend when the market value was $15 per share
June 30: Issued the stock dividend declared on June 15
December 10: Declared a cash dividend of $1.50 per share to be paid in January 2015
December 31: Recognized net income of $376,000
The balance in retained earnings at 2014 year-end is:
a. $738,000
b. $756,000
c. $822,000
d. $918,000
e. $936,000
Explanation / Answer
OPENNING RETAINNED EARNNINGS = $740000
LESS STOCK DIVIDEND (120000 * 10%) * $15 = ($180000)
LESS CASH DIVEDEND DECLARED (132000 * $1.50) = ($198000)
ADD RECOGNIZED NET INCOME = $376000
BALANCE RETAINED EARNNINGS 2014 YEAR END = $738000
ANSWER OPTION A.
NOTE-
1./ IT IS ASSUMED THAT THE COMPANY DECIDED TO PAYCASH DIVIDEND ON THE STOCK DIVIDEND OF JUNE 30.
2./ DECLARATION OF CASH DIVIDEND SHOULD BE TAKEN INTO CONSIDERATION, PAYMENT DATE OF CASH DIVIDEND IS NOT MATARIAL FOR CALCULATION OF RETAINED EARNNINGS.
--------------------------------------------------------------------------------------------------------------------------------------------------------
IF WE ASSUME THAT THE COMPANY DECIDED NOT TO PAY CASH DIVIDEND ON THE STOCK DIVIDEND DECLARED THEN THE BALANCE OF RETAINED EARNNING WILL APPEAR AS FOLLOWS.
OPENNING RETAINNED EARNNINGS = $740000
LESS STOCK DIVIDEND (120000 * 10%) * $15 = ($180000)
LESS CASH DIVEDEND DECLARED (120000 * $1.50) = ($180000)
ADD RECOGNIZED NET INCOME = $376000
BALANCE RETAINED EARNNINGS 2014 YEAR END = $756000
ANSWER OPTION B.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.