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30 December, 17:27

The Howe Co. stockholders equity account follows: Common stock (400,00 shares at $4par) $1,600,000 Paid in capital in excess in par 1,000,000 Retained earnings 1,900,000 Total stockholders equity $4,500,000 The earnings available for common stockholdes from this periods operations are $100,000, which have been included as part of the $1,9 million retained earnings. A. what is the maximun 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 largst 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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  1. 30 December, 19:19
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    The computations are shown below:

    A. Dividend per share:

    = (Total retained earning) : (number of shares)

    = ($1,900,000) : (400,000 shares)

    = $4.75 per share

    B. Largest per share:

    = (Cash) : (number of shares)

    = ($160,000) : (400,000 shares)

    = $0.40 per share

    C. In part A, the cash and retained earnings is decreased by $1,900,000

    whereas in part B, the cash and retained earnings is decreased by $160,000

    D. The retained earning which is a part of stockholder equity is decreased by $80,000
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