The following account balances were drawn from the financial records of Kent Com
ID: 2331534 • Letter: T
Question
The following account balances were drawn from the financial records of Kent Company (KC) as of January 1, 2018: Assets, $11,000; Liabilities, $3,400; Common Stock, $5,800; and Retained Earnings, $1,800. KC has agreed to pay the creditors $340 of interest per year. Further, KC agrees that for the 2018 fiscal year any annual earnings remaining after the interest charges will be paid out as dividends to the owners.
Required
Assuming KC earns a before interest expense recognition profit of $780 during 2018, determine the amount of interest and dividends paid.
Assuming KC earns a before interest expense recognition profit of $410 during 2018, determine the amount of interest and dividends paid.
Assuming KC earns a before interest expense recognition profit of $100 during 2018, determine the amount of interest and dividends paid.
Typewritten answers, please, no handwritten responses. Thank you.
Explanation / Answer
Answer to Part a.
Earning before Interest Expense = $780
Interest Expense = $340
Amount remaining after Interest Expense will be paid as Dividend.
Dividend = $780 - $340
Dividend = $440
Answer to Part b.
Earning before Interest Expense = $410
Interest Expense = $340
Amount remaining after Interest Expense will be paid as Dividend.
Dividend = $410 - $340
Dividend = $70
Answer to Part c.
Earning before Interest Expense = $100
Interest Expense = $340
Since, there is a loss after recording Interest Expense, No Dividend will be paid.
Dividend = $0