At the end of the year, the Long Life Bulb Company announced that it had produced a gross profit of $1,000,000. The company has also established that over the course of this year it has incurred $345,000 in operating expenses and $125,000 in interest expenses. The company is subject to a 30% tax rate and has declared $57,000 total preferred stock dividends.
a. What factors must be considered in regards the dividend Life Bulb Company can pay to their common stockholders?
b. Compute the increased retained earnings for 2009 if the company were to declare a $2.25 common stock dividend and the company has 100,000 shares of common stock outstanding. Prepare a statement of changes of stockholders' equity to reflect the activity specified in a) and b).