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Unformatted text preview: P13-4. Howe Company: Dividend contraints and effects on stockholers' equity 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 th Common stock (400,00 shares @ $4 par) Paid-in capital in excess of par Retained earnings Total stockholders' equity A) What is the maximum dividend per share that the firm can pay? (Assume that legal capital include all paid-in capital) "In states where the firm’s legal capital is defined as the par value of it stock, the firm could pay out $340,000 ($200,000$140,000) in cash di without impairing its capital. In states where the firm’s legal capital inc paid-in capital, the firm could pay out only $140,000 in cash dividends Paid-in capital in excess of par = Number of share holders Dividend per share DPS = B) If the firm has $160,000 in cash, what is the largest per-share dividend it can pay without borrowing? Dividend per share = total earnings / number of share holders Cash= Number of share holders Dividend per share DPS ( with out borrowing) = C) Indicate the accounts and changes, if any, that will result if the firm pays the dividends indicated in parts a and b. Retained earnings are "Earnings not distributed to owners as dividends…" P Therefore when we issue divendens we loose the earnings, so if the diveden the following will occur: For A = For B = D) Indicate the effects of an $80,000 cash dividend on stockholders' equity. retained earning reduces by $80,000 which have been included as part of the $1.9 million retained earnings. $1,600,000.00 $1,000,000 $1,900,000 $4,500,000 apital include all paid-in capital) ital is defined as the par value of its common 00 ($200,000$140,000) in cash dividends s where the firm’s legal capital includes all ut only $140,000 in cash dividends." Pg 652 in book $1,000,000 $400,000 $1,400,000.00 $1,400,000.00 hout borrowing? / number of share holders 160000 400000 0.40 $.40/share ds indicated in parts a and b. stributed to owners as dividends…" Pg 644 in book e loose the earnings, so if the divedens are payed to the sahreholders Cash and retained earning decrease by 1900000 Cash and retained earning decrease by 160000 ` ...
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- Spring '11