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Accounts of Crystal Company (CC)

The following account balances were drawn from the financial records of Crystal Company (CC) as of January 1, 2013. Assets, $14,000; liabilities, $4000.; common stock, $7000.; and retained earnings, $3000. CC has agreed to pay the creditors $400 of interest per year. Further, CC agrees that for the 2013 fiscal year any annual earnings remaining after the interest charges will be paid out as dividends to the owners.

 

Required:

  1. Assuming CC earns a before interest expense recognition profit of $900 during 2013, determine the amount of interest and dividends paid

 

Solution

Assets= $14000

Liabilities= $4000

Equity= Assets-Liabilities=$14000-$4000=$10000

Common stock=$7000

Retained earnings=$3000

 

 

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