Dividend constraints (answer attached)

Dividend constraints The Howe Company’s stockholders’ equity account follows:

Common stock (400,000 shares at $4 par) $1,600,000

Paid-in capital in excess of par 1,000,000

Retained earnings

Total stockholders’ equity

The earnings available for common stockholders from this period’s operations 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 includes 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.

$4,500,000

1,900,000