The balance sheet of Rainbow Company included the following shareholders’ equity
ID: 341126 • Letter: T
Question
The balance sheet of Rainbow Company included the following shareholders’ equity accounts at December 31, 2017:
Paid-in capital:
Common stock, 400,000 shares at $1 par
400,000
Paid-in capital --- excess of par
2,000,000
Retained earnings
1,200,000
Total shareholders’ equity
$3,600,000
On May 3, 2018, a 5-for-4 stock split was declared and distributed. The stock split was effected in the form of a 25% stock dividend. The market value of the $1 par common stock was $7 per share. On July 5, 2018, a 4% common stock dividend was declared and distributed. The market value of the common stock was $10 per share. On December 1, 2018, the board of directors declared a cash dividend of $0.50 per share on its common shares, payable on December 28 to shareholders. What is the balance of retained earnings shown on December 31, 2018 balance sheet assuming net income is $800,000 for year 2018 and large stock dividend does not affect retained earnings?
a) $1,540,000
b) $1,350,000
c) $1,920,000
d) $1,860,000
Paid-in capital:
Common stock, 400,000 shares at $1 par
400,000
Paid-in capital --- excess of par
2,000,000
Retained earnings
1,200,000
Total shareholders’ equity
$3,600,000
Explanation / Answer
Answer A)$1540000
The balance of retained earnings shown on December 31, 2018:
Less:stock dividend 400000*25%*1
(stock dividend should be recorded at par value and O/S shares)
Particulars Amount Retained earnings 1200000 Add: net income 800000 Less:cash dividend (400000*$0.50) (200000) Less:common stock dividend(400000*4%)*$10 (160000)Less:stock dividend 400000*25%*1
(stock dividend should be recorded at par value and O/S shares)
(100000) The balance of retained earnings 1540000Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.