The year-end 2018 balance sheet of Brandex Inc. listed...

The year-end 2018 balance sheet of Brandex Inc. listed common stock and other paid-in capital at $$\$ 1,100,000$$ and retained earnings at $$\$ 3,400,000$$. The next year, retained earnings were listed at $$\$ 3,700,000$$. The firm's net income in 2019 was $$\$ 900,000$$. There were no stock repurchases during the year. What were the dividends paid by the firm in 2019 ? ( $L O 3-I$ )

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Key Concepts

Retained Earnings

Retained earnings represent the cumulative net income of a firm that has been reinvested in the business rather than paid out as dividends. This account increases with net income and decreases when dividends are paid, making it a key indicator of a company's reinvestment strategy and financial health.

Net Income

Net income is the profit that remains after all expenses, taxes, and costs have been subtracted from total revenue. It plays a crucial role in financial statements as it directly affects the retained earnings, providing the funds that can be distributed as dividends or reinvested in the business.

Dividends

Dividends are payments made to shareholders from a company's earnings. They represent a distribution of profits, reducing retained earnings by the amount paid to shareholders. The decision to pay dividends reflects the company's policy on returning profits versus reinvesting them in the company.

Retained Earnings Equation

The retained earnings equation links the beginning balance, net income, and dividends to the ending balance. It is given by Ending Retained Earnings = Beginning Retained Earnings + Net Income - Dividends. This equation is fundamental for understanding the changes in a firm's retained earnings over a period.

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