The Mori Egg Noodle Company has the following equity accounts on its balance she

Question

The Mori Egg Noodle Company has the following equity accounts on its balance sheet

common stock ($10 par, 300,000 shares)          $3,000,000

Contributed capital in excess of par                    $1,500,000

Retained earnings                                              $6,000,000

Total common stockholders' equity                    $10,500,000

a. What is the maximum amount of dividends that may be paid by the Mori Company if the capital impairment provisions of state law are limited to the following?

i. The Par value of common stock

ii. The par value and the caital in excess of par accounts?

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Part A:

Maximum Dividend = Retained Earnings + Capital In Excess of Par = 6000000 + 1500000 = $7500000

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Part B:

Maximum Dividend = Retained Earnings = $6000000

Thanks.

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