Dividend constraints and effects on stockholders' equity
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The Howe Company's stockholders' equity account is attached.
The earning available for common stckholders from the period's operation are $100,000, which have been included as part of the $1.9 million retained earnings.
a) what is the maximum dividend per share that the firm can pay? (Assume that legal capital include all paid-in capital)
b) if the firm has $160,000 in cash, what is the largest per-share dividend it can pay without borrowing?
c) indicate the accounts and changes, if any, that will result if the firm pays the dividends indicated in parts a and b.
d) indicate the effects of an $80,000 cash dividend on stockholders' equity.
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Solution Summary
The solution explains how to calculate the maximum amount of dividends that can be paid and the effect of dividend payment on stockholders equity
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a) What is the maximum dividend per share that the firm can pay? (Assume that legal capital include all paid-in capital)
Since the legal capital (capital from which dividends cannot be paid) includes all paid-in capital, only the retained earnings amount is available for payment of dividends. The total retained earnings are $1,900,000 ...
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