A company has 2,000 shares of $1 par value common stock and 200 shares of 5%,$110 par,noncumulative preferred stock outstanding.The balance in Retained Earnings at the beginning of the year was $500,000.Net income for the current year was $300,000.If the company paid a dividend of $2 per share on its common stock,what is the balance in Retained Earnings at the end of the year?
A)$800,000
B)$805,100
C)$794,900
D)$494,900
E)$194,900

Question

Quizplus · Accepted Answer

First, we need to calculate the amount of dividends paid on the common stock:
Dividends = Number of shares x Dividend per share
Dividends = 2,000 shares x $2 per share
Dividends = $4,000

Next, we need to calculate the amount of dividends paid on the preferred stock:
Dividends = Number of shares x Dividend rate x Par value
Dividends = 200 shares x 5% x $110 par value
Dividends = $1,100

Since the preferred stock is noncumulative, we only need to pay the current year's dividend on it.

Now, we can calculate the amount of retained earnings left at the end of the year:
Retained Earnings = Beginning balance + Net income - Dividends
Retained Earnings = $500,000 + $300,000 - $4,000 - $1,100
Retained Earnings = $794,900

Therefore, the correct answer is C.

A Company Has 2,000 Shares of $1 Par Value Common