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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Business

Case Cochran

29 July, 11:00

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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Janet Berger · Answer 1

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