Problem: The Howe Company's stockholders' equity account is illustrated below:
| Common stock (400,00 shares @ $4 par) |
$1,600,000.00 |
| Paid-in capital in excess of par |
$1,000,000 |
| Retained earnings |
$1,900,000 |
| Total stockholders' equity |
$4,500,000 |
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.