Question

Mimi owns a dog training school with her sister Yvonne incorporated as Puppy College, Inc. with 100 shares of stock. After all expenses, net income for the first half of the year was $20,000.   Mimi owns 60 shares and Yvonne owns 40 shares. It now must be distributed.

A) The earning s distributed are called

a. bonus

b. stimulus

c. dividends

d. capital

B) The earnings are divided as follows?

a. $10,000 to each

b. $8,000 to Mimi and $12,000 to Yvonne

c. $12,000 Mimi and $6,000 to Yvonne

d.$ 12,000 to Mimi and $6,000 to her husband, Hector

Answer 1

A)

a. Bonus is an amount of money added to an employees income as a reward. So, it is incorrect option.

b. Stimulus is something that encourages growth. As here the income is already grated so there is no chnage or growth. hence, this is incorrect.

d. Capital is assets to the business not income. Hence, it is incorrect option.

c. The earnings distributed are called as Dividends. Dividends are ditribution of profit among the shareholders of the corporation. Hence, this is correct option.

B)

The earning are dividend on the basis of their shareholding percentage.

In this case, shareholding percentage is in the ration of 60:40. Hence, the earnings are divided as $ 12000: $ 8000.

The share Mimi owns is 60%, hence, $ 12000 income Mimi owns whereas Yvonne owns 40% hence, $ 8000 he should get.

As per the finding option a, c and d is incorrect. The option b is correct but it should be $ 12000 to Mimi and $ 8000 to Yvonne.