The Howe Company's stockholders' equity account follows:
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Common stock (400,000 shares at $4 par)
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$1,600,000
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Paid-in-capital in excess of par
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1,000,000
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Retained earnings
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1,900,000
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Total stockholders' equity
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$4,500,000
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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 $80,000 cash dividend on stockholders' equity.