Question

Required information [The following information applies to the questions displayed below.) Incentive Corporation was authorized to issue 12,000 shares of common stock, each with a $1 par value. During its first year, the following selected transactions were completed: a. Issued 6,000 shares of common stock for cash at $20 per share. b. Issued 2,000 shares of common stock for cash at $23 per share. 4. Incentive Corporation has $30,000 in the company's bank account. At year-end, the accounts reflected a profit of $100. What is the maximum amount of cash dividends the company can declare and distribute? Maximum amount of cash dividends

Answer 1

ANSWER

The maximum amount of cash dividends that company can declare and distribute is $100

Dividends should be distributed only out of the profits earned by the company.

the balance of $30,000 in the cash account is not due to profits of the company. so, the cash balance of $30,000 can not be declared as dividends.

The balance in the retained earnings is $100 which is the maximum amount can be declared and distributed as dividends.

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