Aikman Company has paid dividends of $2,410,$0,$1,570 and $1,060 over the first four years of the company's existence.If Retained Earnings after year four has an ending balance of $9,700,what is the average annual amount of net income (loss)over the past four years for Aikman?
A)$3,685.
B)$14,740.
C)$840.
D)$1,260.

Question

Quizplus · Accepted Answer

To find the average annual net income, we need to calculate the total net income over the past four years. We can use the formula:
Net Income = Dividends Paid - Retained Earnings

Year 1: $2,410 = Dividends Paid - Retained Earnings
Year 2: $0 = Dividends Paid - Retained Earnings
Year 3: $1,570 = Dividends Paid - Retained Earnings
Year 4: $1,060 = Dividends Paid - Retained Earnings
Year 4 ending Retained Earnings = $9,700

So, calculating the retained earnings of each year, we get:

Year 1 Retained Earnings = $0
Year 2 Retained Earnings = $2,410
Year 3 Retained Earnings = $2,410 + $0 = $2,410
Year 4 Retained Earnings = $2,410 + $1,570 = $3,980
Year 4 Ending Retained Earnings = $3,980 + $1,060 = $5,040
Total net income over 4 years = $5,040

The average annual net income = Total Net Income / Number of Years

Average annual net income = $5,040 / 4 = $1,260

Therefore, the correct answer is A) $3,685.

Aikman Company Has Paid Dividends of $2,410,$0,$1,570 and $1,060 Over