In this case the most conservative manner of

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Unformatted text preview: e that appropriations of retained earnings be disclosed in the financial statements because they affect the magnitude of a company's future dividends. The magnitude of future dividends is information that current and potential investors desire. Failure to adequately disclose such information could cause investors to lose money on their investments and, consequently, to sue the auditor. b. Common stock Additional paid­in capital Retained earnings XX XX Restricted 350,000 Unrestricted 450,000 Total stockholders' equity c. $ XX The company can only declare a dividend equal only to the portion of retained earnings which exceed $500,000. Since the debt covenant requires a minimum balance of $500,000 in the retained earnings account, the board is constrained by that clause and could possibly declare dividends up to a maximum of $300,000. PROBLEMS P12–1 a. Cash (+A) 100,000 Preferred Stock (+SE) 100,000 Issued preferred stock. Debt/Equity = Total Liabilities ÷ Stockholders' Equity = $250,000 ÷ ($330,000 + $100,000) = .58 b....
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This homework help was uploaded on 03/03/2014 for the course ACCT 5053 taught by Professor Staff during the Fall '08 term at Oklahoma State.

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