Question: At the beginning of 2029, Sheridan Company had retained earnings of $394000. During the year, Sheridan reported net income of $94000, sold treasury stock at a “gain” of $36500, declared a cash dividend of $60100, and declared and issued a small stock dividend of 2840 shares ($10 par value) when the fair value of the stock was $20 per share. The retained earnings available for dividends at the end of 2029 was
1. **State the problem:** Calculate the retained earnings available for dividends at the end of 2029 for Sheridan Company.
2. **Recall the formula for retained earnings:**
$$\text{Ending Retained Earnings} = \text{Beginning Retained Earnings} + \text{Net Income} - \text{Dividends Declared}$$
3. **Important note:** Gains from selling treasury stock do not affect retained earnings directly, so we exclude the $36500 gain.
4. **Calculate the stock dividend amount:**
Stock dividend value = Number of shares \(\times\) Fair value per share
$$2840 \times 20 = 56800$$
5. **Calculate total dividends declared:**
Cash dividend + Stock dividend
$$60100 + 56800 = 116900$$
6. **Calculate ending retained earnings:**
$$394000 + 94000 - 116900 = 371100$$
7. **Answer:** The retained earnings available for dividends at the end of 2029 is **$371100**.