Chapter 1, Problem 1.15E

Below are approximate amounts related to retained earnings reported by free companies in previous years.

  1.    Coca-Cola reports an increase in retained earnings of $3.2 billion and net income of $6.9 billion. What is the amount of dividends?

  2.    PepsiCo reports an increase in retained earnings of $3.4 billion and dividends of $2.6 billion. What is the amount of net income?

  3.    Google reports an increase in retained earnings of $1.6 billion and net income of $1.6 billion. What is the amount of dividends?

  4.    Sirius Satellite Radio reports beginning retained earnings of –$1.6 billion, net loss of $1.0 billion, and $0 dividends. What is the amount of ending retained earnings?

  5.    Abercrombie & Fitch reports ending retained earnings of $1.56 billion, net income of $0.43 billion, and dividends of $0.06 billion. What is the amount of beginning retained earnings?

  Required:

  Calculate the answer to each.

To determine

Dividends: Dividends are the rewards to the stockholders for investing their money in the company. Payment of dividend depends upon the decision of the management.

To determine: The amount of dividend of Company CC.

Answer to Problem 1.15E

The amount of dividend of Company CC is $3.7 billion.

Explanation of Solution

Retained Earnings can be determined by using the formula:

$\begin{array}{l}\text{Retained Earnings}=\text{Net Income}-\text{Dividends Payable}\\ \end{array}$

Given:

Increase in retained earnings is $3.2 billion and Net income is $6.9 billion.

Determine the amount of dividend paid during the year.

$\begin{array}{c}\text{Retained Earnings}=\text{Net Income}-\text{Dividends Paid}\\ \$3.2\text{ billions}=\$6.9\text{ billions}-\text{Dividends Paid}\\ \text{Dividends Paid}=\$6.9\text{ billions}-\$3.2\text{ billions}\\ \text{Dividends Paid}=\$3.7\text{ billions}\end{array}$

Conclusion

Hence, Company CC paid dividend of $3.7 billion.

To determine

Net income: Net income is the excess amount of revenue which arises after deducting all the expenses of a company. In simple terms, it is the difference between total revenue and total expenses of the company.

To determine: The amount of net income earned by Company P.

Answer to Problem 1.15E

The amount of net income of Company P is $6.0 billion.

Explanation of Solution

Given:

Increase in retained earnings is $3.4 billion and dividends paid is $2.6 billion.

Determine the amount of net income earned during the year.

$\begin{array}{c}\text{Retained Earnings}=\text{Net Income}-\text{Dividends Paid}\\ \$3.4\text{ billions}=\text{ Net Income}-\$2.6\text{ billions}\\ \text{Net Income}=\$3.4\text{ billions}+\$2.6\text{ billions}\\ \text{Net Income}=\$6.0\text{ billions}\end{array}$

Conclusion

Hence, Company P has earned net income of $6.0 billion.

To determine

Dividends: Dividends are the rewards to the stockholders for investing their money in the company. Payment of dividend depends upon the decision of the management.

To determine: The amount of dividend of Company G.

Answer to Problem 1.15E

The amount of dividend of Company G is $0.

Explanation of Solution

Given:

Increase in retained earnings is $1.6 billion and Net income is $1.6 billion.

Determine the amount of dividend paid during the year.

$\begin{array}{c}\text{Retained Earnings}=\text{Net Income}-\text{Dividends Paid}\\ \$1.6\text{ billions}=\$1.6\text{ billions}-\text{Dividends Paid}\\ \text{Dividends Paid}=\$1.6\text{ billions}-\$1.6\text{ billions}\\ \text{Dividends Paid}=\$0\end{array}$

Conclusion

Hence, Company G paid dividend of $0.

To determine

Retained earnings: Retained earnings are the portion of earnings kept by the business for the purpose of reinvestments, payment of debts, or for future growth.

To determine: The amount of retained earnings at the end, of Company SS.

Answer to Problem 1.15E

The amount of retained earnings at the end of Company SS is ($2.6 billion).

Explanation of Solution

Given:

Increase in retained earnings is ($1.6) billion and Net loss is $1.0 billion.

Determine the amount of retained earnings at the end of the year.

Company SS
Statement of Retained Earnings
Particulars	Amount (in billions)
Balance at the Beginning	($1.6)
Less: Net Loss during the year	($1.0)
	($2.6)
Less: Dividends Paid	$0
Balance at the End	($2.6)

Table (1)

Conclusion

Hence, the retained earnings at the end of Company SS is ($2.6 billion).

To determine

Retained earnings: Retained earnings are the portion of earnings kept by the business for the purpose of reinvestments, payment of debts, or for future growth.

To determine: The amount of retained earnings of Company AF.

Answer to Problem 1.15E

The amount of retained earnings at the beginning, of Company AF is $1.19 billion.

Explanation of Solution

Determine the amount of retained earnings at the beginning of the year.

Company AF
Statement of retained earnings
Particulars	Amount (in billions)
Retained Earnings at the end	$1.56
Less: Net Income	$(0.43)
	$1.13
Add: Dividends	$0.06
Retained Earnings at the beginning	$1.19

Table (2)

Conclusion

Hence, the retained earnings at the beginning of Company AF is $1.19 billion.