CMA Study Group

  • 1.  Dividend Policy

    Posted 10-07-2021 08:59 AM

    Bertram Company had a balance of $100,000 in retained earnings at the beginning of the year and of $125,000 at the end of the year. Net income for this time period was $40,000. Bertram�s statement of financial position indicated that the dividends payable account had decreased by $5,000 throughout the year, despite the fact that both cash dividends and a stock dividend were declared. The amount of the stock dividend was $8,000. When preparing its statement of cash flows for the year, Bertram should show cash paid for dividends as




    Detailed Answer

    Answer (C) is correct. The amount of total dividends declared during the year can be calculated as follows:
    Beginning retained earnings........................................................ $100,000
    Net income for the year.............................................................. 40,000
    Ending retained earnings............................................................. (125,000)
    Dividends declared during the year..............................................$ 15,000
    Since $8,000 is the amount of stock dividends declared, the amount of cash dividends declared this year is $7,000 ($15,000 � $8,000). The amount of cash dividends paid during the year can be calculated as follows:
    Decrease in the cash dividends payable account during the period ...........$ 5,000
    Cash dividends declared during the year................................................ 7,000
    Cash paid for dividends during the year................................................ $12,000
    NOTE: Stock dividends declared does not affect the dividends payable account.











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    GEZOULI ELTAYEB ALI
    Accountant
    Riyadh
    Saudi Arabia
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