Question

Over the first four years of a company's life, it earned the following net income (loss): $7,000; $4,000; $9,000, and ($3,000). If the company's ending retained earnings is $13,400 after year 4, what is the average amount of dividends paid per year?

Answer 1

Answer:

The average amount of dividends paid per year is $900.

Explanation:

Please find below for detailed calculation and explanations:

As the company has just operated for four years: Retained Earning at the beginning is 0.

Total accumulated net income (loss) is: $7,000 + $4,000 + $9,000 - $3,000 = $17,000.

The difference between ending Retained Earnings and Total Accumulated Profit is: $17,000 - $13,400 = $3,600.

The difference is also the total dividend distributed to its shareholders ( assuming they are not booked in other Equity Reserve account).

Thus, the average amount of dividend paid per year = 3,600 / 4 = $900.