Alpha Co. is paying a $.64 per share dividend today. There are 158,000 shares outstanding with a par value of $1 per share. As a result of this dividend, the: A) common stock account will decrease by $138,000 B) capital in excess of par value account will decrease by $101,120 C) retained earnings will decrease by $101,120. D) retained earnings will decrease by $99,360. E) common stock account will decrease by $101,120.

Question

Broderick

Business

18 July, 01:21

Alpha Co. is paying a $.64 per share dividend today. There are 158,000 shares outstanding with a par value of $1 per share. As a result of this dividend, the: A) common stock account will decrease by $138,000 B) capital in excess of par value account will decrease by $101,120 C) retained earnings will decrease by $101,120. D) retained earnings will decrease by $99,360. E) common stock account will decrease by $101,120.

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Answers (1)

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Brenton · Answer 1

Dividend paid = $0.64 x 158,000 = $101,120. The dividend paid reduces retained earnings by $101,120.

The correct answer is C

Explanation:

Dividend is paid out of profit after tax. This reduces the retained earnings of the company since dividend involves outflow of cash.