F.W. Woolworth Co, a major retailer, recently increased its quarterly dividend by 24 percent, from 33 cents to 41 cents per share. The new dividend was declared on April 10, payable June 1 to the shareholders of record on May 2. The company cited strong earnings as the reason for the increase. REQUIRED:

a. Assume that Woolworth had 10 million shares of stock outstanding. Provide the journal entries that would be recorded on April 10, May 2, and June 1.

b. Would each entry increase, decrease, or have no effect on the company’s current ratio, working capital position, and debt/equity ratio? Assume that the dividend is immediately reflected in Retained Earnings.

c. Like Woolworth, many companies base their dividend payments on earnings. Are divi¬ dends actually paid out of profits? Are all profitable companies in a position to pay large dividends? Why or why not?

d. Briefly explain some of the major factors considered by the boards of directors of compa¬ nies deciding whether or not to pay dividends and how much to pay