How Much Can the Parent Legally Pay in Cash Dividends? Selected account balances at 12/31/06 for Pitticorp and its 100%-owned banking subsidiary, Sittibank, are as follows:

Pitticorp Sittibank Consolidated Cash . $300,000 $250,000 $550,000 Investment in Sittibank (under the equity method) . 440,000 Retained earnings . 500,000 400,000 500,000 1 How much of a cash dividend could Pitticorp legally declare on its outstanding common stock?

2 Repeat requirement 1 but first revise the amounts given to reflect use of the cost method instead of the equity method.

3 Repeat requirement 1 but also assume that federal bank regulators have imposed upstream cash transfer restrictions that prevent Sittibank from paying any dividends until its stockholder’s eq¬

uity has become a much higher percentage of total assets.

4 What disclosure should be made in the consolidated statements regarding intercompany up¬

stream cash transfer restrictions by the banking regulators? What purpose would it serve?

5 If the parent had $1,000,000 in cash instead of $300,000, do you think the disclosure in re¬

quirement 4 would still be needed? Why or why not?