The following account balances were drawn from the financial records of Barnes Company (BC) as of January 1, 2016: Assets, $14,000; Liabilities, $4,000; Common Stock, $7,000; and Retained Earnings, $3,000. BC has agreed to pay the creditors $400 of interest per year. Further, BC agrees that for the 2016 fiscal year any annual earnings remaining after the interest charges will be paid out as dividends to the owners.
Required
a. Assuming BC earns a before interest expense recognition profit of $900 during 2016, determine the amount of interest and dividends paid.
b. Assuming BC earns a before interest expense recognition profit of $500 during 2016, determine the amount of interest and dividends paid.
c. Assuming BC earns a before interest expense recognition profit of $100 during 2016, determine the amount of interest and dividends paid.