Use the following information for questions.
Financial statements for Bernard Corp. are presented below: BERNARD CORP. Total assets on the December 31, 2020 statement of financial position were $ 1,108,000. Accumulated depreciation on the equipment sold was $ 56,000.
-Ophelia Ltd. reported retained earnings at December 31, 2019 of $ 270,000, and at December 31, 2020, $ 218,000. Net income for calendar 2020 was $ 187,500. During 2020, a stock dividend was declared and distributed, which increased the common shares account by $ 116,500. As well, a cash dividend was declared and paid during the year. The amount of the cash dividend declared and paid was
A) $ 93,000.
B) $ 123,000.
C) $ 164,500.
D) $ 239,500.

Question

Use the following information for questions.
Financial statements for Bernard Corp. are presented below:  BERNARD CORP.  Total assets on the December 31, 2020 statement of financial position were $ 1,108,000. Accumulated depreciation on the equipment sold was $ 56,000.
-Ophelia Ltd. reported retained earnings at December 31, 2019 of $ 270,000, and at December 31, 2020, $ 218,000. Net income for calendar 2020 was $ 187,500. During 2020, a stock dividend was declared and distributed, which increased the common shares account by $ 116,500. As well, a cash dividend was declared and paid during the year. The amount of the cash dividend declared and paid was
A) $ 93,000. 
B) $ 123,000. 
C) $ 164,500. 
D) $ 239,500.

Quizplus · Accepted Answer

Retained earnings for 2020 can be calculated by adding net income to the retained earnings from 2019 and subtracting the stock dividend. 
Retained earnings at December 31, 2020 = $270,000 + $187,500 - $116,500 = $341,000. 
To find the cash dividend declared and paid, we need to know the change in retained earnings from December 31, 2019 to December 31, 2020. 
Change in retained earnings = $218,000 - $270,000 = -$52,000. 
This means that dividends (both cash and stock) exceeded net income by $52,000. 
Since the stock dividend increased common shares but did not decrease retained earnings, we can assume that the entire $52,000 difference was paid out as cash dividends. 
Therefore, the amount of the cash dividend declared and paid was $52,000, which corresponds to option B.

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