Question

Refer to the data in QS 12-11.

1. Assume that all common stock is issued for cash. What amount of cash dividends is paid during 2017?
2. Assume that no additional notes payable are issued in 2017. What cash amount is paid to reduce the notes payable balance in 2017?

Short answer

1. The cash paid for dividends by Cruz. Inc. during 2017 is$2,800.
2. The cash paid to reduce the notes payable balance during 2017 by Company Cruz Inc. is$40,000.

Step-by-step solution

Meaning of Common Stock

Common stocks are recorded on the balance sheet as the entire number of a company's offers. The company's proprietors are its common stockholders, who also have voting rights and are entitled to dividends. They can be outside investors, insiders, or firm promoters.

(1) Calculating the amount of cash dividends

The cash paid for dividends during 2017 by Cruz Inc. is calculated below:

Description	Amount ($)
Retained earnings, beginning	$8,400
Add: Net income for the year	30,000
Less: retained earnings, closing	(35,600)
Cash paid for dividends	$2,800

Therefore, the cash paid for dividends during 2017 is $2,800.

(2) Determining the cash amount is paid to reduce the notes payable balance in 2017

Since no new notes payable were issued in 2016, the cash used to reduce the notes payable would be determined by subtracting the closing balance from the beginning balance. The following calculation shows how much money Cruz Inc. paid to lower the outstanding notes due balance in 2016:

Description	Amount ($)
Notes payable, beginning	$69,000
Add: Additional notes payable during 2017	0
Less: Notes payable, closing	(29,000)
Cash paid to reduce the notes payable balance	$40,000

Therefore, the cash paid reduced the notes payable balance during 2017 by $40,000.