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    Payment of dividend with legal capital limitations

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    Beta Corporation has the following shareholders' equity accounts

    Common stock at par $ 5,000,000
    Paid-in capital in excess of par 2,000,000
    Retained earnings 25,000,000
    Total stockholders' equity $32,000,000

    a. What is the maximum amount that Beta Corporation can pay in cash dividends without impairing its legal capital if it is headquartered in a U.S. state where capital is defined as the par value of common stock?
    b. What is the maximum amount that Beta Corporation can pay in cash dividends without impairing its legal capital if it is headquartered in a U.S. state where capital is defined as the par value of common stock plus paid-in capital in excess of par?

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    Solution Preview

    a. What is the maximum amount that Beta Corporation can pay in cash dividends without impairing its legal capital if it is headquartered in a U.S. state ...

    Solution Summary

    The answer contains the payment of dividend within the limitations of legal capital.

    $2.19

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