The following information pertains to Alpha Computing at the end of 2018: Alpha Computing's Retained Earnings account had a zero balance at the beginning of 2018.What amount of dividends did the company pay in 2018?
$$\begin{array} { | l r | }
\hline \text { Assets } & \$ 970,000 \
\hline \text { Liabilities } & \$ 560,000 \
\hline \text { Net Income } & \$ 90,000 \
\hline \text { Common Stock } & \$ 360,000 \
\hline
\end{array}$$
A)$280,000.
B)$150,000.
C)$30,000.

Question

The following information pertains to Alpha Computing at the end of 2018: Alpha Computing's Retained Earnings account had a zero balance at the beginning of 2018.What amount of dividends did the company pay in 2018?
$$\begin{array} { | l r | } 
\hline \text { Assets } & \$ 970,000 \
\hline \text { Liabilities } & \$ 560,000 \
\hline \text { Net Income } & \$ 90,000 \
\hline \text { Common Stock } & \$ 360,000 \
\hline
\end{array}$$
A)$280,000.
B)$150,000.
C)$30,000.

Quizplus · Accepted Answer

The equity of the company can be calculated as Assets - Liabilities = $970,000 - $560,000 = $410,000. Since the beginning Retained Earnings was zero and the only changes to equity would be from Net Income and Dividends, the ending equity is the sum of Common Stock and Retained Earnings. Given that Common Stock is $360,000 and total equity is $410,000, the Retained Earnings must be $50,000. Since Retained Earnings increased by $90,000 due to Net Income and ended at $50,000, dividends of $40,000 must have been paid. However, there seems to be a mistake in my calculation as none of the options match. Let's correct the approach:Equity = Assets - Liabilities = $970,000 - $560,000 = $410,000.Equity is composed of Common Stock + Retained Earnings. Given that Common Stock is $360,000, and assuming all of Net Income contributes to Retained Earnings before dividends:Retained Earnings before dividends = Net Income = $90,000.To find the ending Retained Earnings, we subtract the dividends paid from the Net Income added to Retained Earnings.If we set up the equation based on the information given and the correct approach to calculate dividends:$410,000 (Total Equity) = $360,000 (Common Stock) + Retained Earnings (which is $90,000 before dividends).This implies that there's a mistake in my initial explanation, as the calculation provided does not directly lead to the correct answer for dividends based on the options given and the information provided. The correct calculation should directly relate to the change in Retained Earnings and the payment of dividends, which isn't accurately reflected in the options provided.

The Following Information Pertains to Alpha Computing at the End