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16 August, 02:27

ABC had the following net income (loss) the first three years of operation: $7,100, ($1,600), and $3,600. If the Retained Earnings balance at the end of year three is $1,100, what was the total amount of dividends paid over these three years?

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  1. 16 August, 02:46
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    Total amount of dividends paid over these three years is equal to the values of accumulated net income or losses less the balance of Retained Earnings.

    This value is $7,400 (7,100+3,000-1,600) - 1,100.

    Explanation:

    Retained Earnings are the total amounts from net income or loss that are not distributed to stockholders. They are usually re-invested in the company to earn more income.

    The allocation of surplus income between retained earnings and dividends is one of the decisions that a company makes to balance stockholders' expectation for immediate returns and long-term growth of their investments. It is a very delicate decision that must be taken to meet the varying expectations of stockholders.
  2. 16 August, 02:49
    0
    The total amount of dividends paid over these three years: $8000

    Explanation:

    Net income (loss) in three years

    $7,100, ($1,600), and $3,600

    => the total net income is the first three years of operation is:

    $7,100 - ($1,600) + $3,600

    = $9,100

    This money is not kept in the Retained Earnings because it is used for dividend payment. But Earnings balance at the end of year three is $1,100, so the total amount of dividends paid over these three years:

    = Total net incomes - Retained Earnings

    = $9,100 - $1,100,

    = $8000

    Hope it will find you well.
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