Dividend constraints The Howe Companys stockholders equity account follows: Common stock (400 000

QUESTION

Dividend constraints The Howe Companys stockholders equity account follows:Common stock (400,000 shares at $4 par)$1,600,000Paid-in capital in excess of par$1,000,000Retained earnings1,900,000Total stockholders equity$4,500,000The earnings available for common stockholders from this periods operations 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 includes 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.
a. Maximum dividend = $1,900,000 / 400,000 shares = $4.75 per share b. Largest dividend without borrowing = $160,000 / 400,000 shares = $0.40 per share c. In (a), cash and retained earnings each decrease by

,000. In (b), cash and retained earnings each decrease by $160,000. d. Retained earnings (and stockholders equity) decrease by $80,000.

ANSWER:

CLICK REQUEST FOR  AN EXPERT SOLUTION