Chapter 14, Problem 14.4P

Dividend constraints The Howe Company’s stockholders’ equity account follows:

Common stock (400,000 shares at $4 par)	$1,600,000
Paid-in capital in excess of par	$1,000,000
Retained earnings	$1,900,000
Total stockholders’ equity	$4,500,000

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.

1. a. What is the maximum dividend per share that the firm can pay? (Assume that legal capital includes all paid-in capital.)
2. b. If the firm has $160,000 in cash, what is the largest per-share dividend it can pay without borrowing?
3. c. Indicate the accounts and changes, if any, that will result if the firm pays the dividends indicated in parts a and b.
4. d. Indicate the effects of an $80,000 cash dividend on stockholders’ equity.