Dividend constraints The Hawar Company's stockholders' equity account follows.
Common stock (400,000 shares at US$4 par)...........US$1,600,000
Paid in capital in excess of par.................................1,000,000
Retained earnings................................................1,900,000
Total stockholders' equity.................................US$4,500,000
The earnings available for common stockholders from this period's operations are US$100,000, which has been included as part of the US$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 US$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 US$80,000 cash dividend on stockholders' equity.