‫ م‬8:07 2023/‫‏‬5/‫‏‬25 HW4-Dividend-Abd'Al-Rahman Shah

Instructor: Nor Azizan Che Imbi

Student: Abd'Al-Rahman Shah
Course: FINC2302 SECT 6, SEM2, Assignment: HW4-Dividend
Date: 5/25/23
2022/2023

Ashkenazi Companies has the following​stockholders' equity​account:

Common stock ​(180,000 shares at​$3 par) ​$540,000

​Paid-in capital in excess of par 900,000
Retained earnings 360,000
Total​stockholders' equity $1,800,000

Assuming that state laws define legal capital as the par value of common​stock, what dividend​per-share can Ashkenazi​pay? If legal capital
were more broadly defined to include all​paid-in capital, what dividend could Ashkenazi​pay?

Most states prohibit corporations from paying out as cash dividends any portion of the​firm's "legal​capital," which is typically defined as the par
value of common stock. This capital impairment restriction is generally established to provide a sufficient equity base to protect​creditors'
claims.

If legal capital is defined as the par value of common​stock, the amount of dividend Ashkenazi can pay is computed as​follows:

paid-in capital in excess of par + retained earnings

Dividend = ,
number of outstanding shares

$900,000 + $360,000
= = $7.00.
180,000

Ashkenazi Companies could pay a dividend​per-share of ​$7.00 when legal capital is defined as the par value of common stock.

"Legal capital" can be more broadly defined as the par value of common stock and​paid-in capital. If legal capital is broadly defined as the par
value of common stock and​paid-in capital, the amount of dividend Ashkenazi could pay is computed as​follows:

retained earnings
Dividend = ​,
number of outstanding shares

$360,000
= = $2.00.
180,000

Ashkenazi Companies could only pay a dividend​per-share of ​$2.00 when legal capital is more broadly defined to include both the par value of
common stock and​paid-in capital.

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