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Distributing Corporate Earnings During the first year of operations, Sunset Surfwear
Chapter 21, Problem 21-5(choose chapter or problem)
Distributing Corporate Earnings
During the first year of operations, Sunset Surfwear issued 18,500 shares of $10 par common stock. At the end of the year, the corporation had net income of $380,000. The board of directors declared a $5 cash dividend per share of common stock.
Instructions Answer the following questions in your working papers:
1. How much of the net income earned for the year was paid to the common stockholders?
2. How much of the net income was retained by the corporation?
Analyze Compare the date of declaration and date of payment with the date of record. Explain what entry or action is required on each date.
Questions & Answers
QUESTION:
Distributing Corporate Earnings
During the first year of operations, Sunset Surfwear issued 18,500 shares of $10 par common stock. At the end of the year, the corporation had net income of $380,000. The board of directors declared a $5 cash dividend per share of common stock.
Instructions Answer the following questions in your working papers:
1. How much of the net income earned for the year was paid to the common stockholders?
2. How much of the net income was retained by the corporation?
Analyze Compare the date of declaration and date of payment with the date of record. Explain what entry or action is required on each date.
ANSWER:Step 1 of 4
Corporate earnings can be defined as the earnings left with the business entity after paying expenses incurred. Such earnings are either distributed to the owners or retained for re-investment.