Asked by Jasmine Simpson on May 31, 2024
Verified
A firm's balance sheet discloses cash of $300,000, other assets of $700,000, liabilities of $500,000, preferred stock of $100,000, common stock of $200,000, and retained earnings of $200,000. What is the maximum cash dividend the firm can pay?
A) $100,000
B) $300,000
C) $200,000
D) $500,000
Maximum Cash Dividend
The highest dividend payment a company can make, determined by its current earnings and reserve cash levels, without compromising its financial stability.
Balance Sheet
A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time.
Retained Earnings
Profits that a company keeps after dividends are paid, which can be used for reinvestment in the business or to pay down debt.
- Analyze financial statements regarding dividend capacities.
Verified Answer
ZK
Zybrea KnightJun 05, 2024
Final Answer :
C
Explanation :
The maximum cash dividend the firm can pay is limited by its retained earnings, which amount to $200,000. Dividends are paid out of retained earnings, not from the total cash or assets a company has.
Learning Objectives
- Analyze financial statements regarding dividend capacities.