Radon Corp\'s balance sheet is as follows: Radon decides to pay a dividend. Whic

Question

Radon Corp's balance sheet is as follows:

Radon decides to pay a dividend. Which of the follow statements is most correct?

a) The dividend cannot exceed $11,000,000, the total amount of total assets

b) The dividend cannot exceed $1,700,000, the amount of net working capital

c) The dividend cannot exceed $1,000,000, the amount of cash available

d) The dividend cannt exceed $600,000, the amount of retained earnings

Cash $1,000,000 Current Liabilities $1,300,000 Other Current Assets $2,000,000 Long-term Debt $4,100,000 Long Term assets $8,000,000 Common Stock $5,000,000 Total Assets $11,000,000 Retained Earnings $600,000 Total Liab and Equity $11,000,000

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Option D (The dividend cannot exceed $600,000, the amount of retained earnings) is the correct answer.

Explanation:

Retained Earnings is the amount of reserves and surplus available with the company. It is generally used for financing expansion and growth projects of the company. It is also used to pay dividends to shareholders. It is the maximum amount a company can distribute dividends at any point of time. Therefore, Option D is correct.

Thanks.

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