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:
- 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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