Canada Calculate net income from retained earnings

[BA BARACUS]

The answer to my question is $60,000. But I would like to know why:

2014 Equity Section of Balance Sheet
Common shares, 110,000 issued and outstanding 550,000
Retained Earnings 95,000
Total equity 645,000

2015 Equity Section

Common shares, 120,000 issued and outstanding 600,000
Retained earnings 15,000
Total equity 615,000

On May 28, July 26 and again on November 29, the board of directors delcared $0.40 per share dividend on the outstanding common shares. On July 13, 10,000 additional share were issued. No other transactions affected the retained earnings.

I have tried to solve this one but I'm afraid I'm stuck. Are you not supposed to start with the 2014 retained earnings plus NI/loss minus plus 2015 retained earnings?
My NI came to 152,000 (120,000(.4)+130,000(.4)+130,000(.4)).

 

[Triest123]

The dividend paid for the year 2015
= 110,000 x $0.4 + 120,000 x $0.4 + 120,000 x $0.4
= $140,000

The net income for the year 2015
= Retained profit c/f + Dividend paid - Retained profit b/f
= $15,000 + $140,000 - $95,000
= $60,000

 

[BA BARACUS]

Thank you very much. I'm trying to understand why (in my questions -> I got it from an assignment) the dividends that were issued were added to the first year (2014) and not the second year. Obviously you figured it out?

 

[BA BARACUS]

I couldn't change my answer but I wondered why the RE of 2014 didn't carry over. Is it not income? Why would you deduct?

 

[Triest123]

Thank you very much. I'm trying to understand why (in my questions -> I got it from an assignment) the dividends that were issued were added to the first year (2014) and not the second year. Obviously you figured it out?

=> All the transactions (i.e. the declared dividends and issued shares) are taken place in the year 2015.

 

[Triest123]

I couldn't change my answer but I wondered why the RE of 2014 didn't carry over. Is it not income? Why would you deduct?

=> Consider the following equation :
retained earnings b/f (2014) + net income (2015) - dividend paid (2015)
= retained earnings c/f (2015)

 

[BA BARACUS]

=> All the transactions (i.e. the declared dividends and issued shares) are taken place in the year 2015.

But what I mean is: you took the number of 2014 outstanding shares to calculate dividends and why not the 2015?

= 110,000 x $0.4 + 120,000 x $0.4 + 120,000 x $0.4
= $140,000

 

[Triest123]

But what I mean is: you took the number of 2014 outstanding shares to calculate dividends and why not the 2015?

Pls read the question carefully
.On May 28 : total shares issued are 110,000
On July 13 : 10,000 additional shares are issued
On July 26 & Nov 29 : total shares issued are (110,000 +10,000)

 

[BA BARACUS]

Mmm. I understand what you say. However, the assignment never mentioned in what year the dividends were paid out.

 

[Triest123]

Mmm. I understand what you say. However, the assignment never mentioned in what year the dividends were paid out.

Balance sheet is a statement which show or indicate the financial position of a company at the end of its financial year.

Suppose the financial year ended of the company is 31 Dec 2014,
2014 Equity Section of Balance Sheet showing "110,000 issued and outstanding $ 550,000" , that mean "there were totally 110,000 shares issued as at 31 Dec 2014"

2015 Equity Section of Balance Sheet showing "120,000 issued and outstanding $ 600,000" , that mean "there are totally 120,000 shares issued as at 31 Dec 2015"

In other words, there are 10,000 additional shares have been issued during the year 2015 (i.e on 13 Jul 2015), and the dividends (most likely in your question) are also declared during the year 2015

 

[BA BARACUS]

Yes thank you! I talked it over with one of my class mates and she told me the same thing. I had a funny feeling it was something like that. Thanks for your patience and clear explanation!

 

[bklynboy]

Great avatar ....