Question

TLJ, Inc., has the following stockholders' equity accounts and amounts before paying dividends:

Paid-in Capital                                                $ 100,000

Retained Earnings                                               25,000

Total                                                                    $125,000

Deduct: Treasury Stock                                     10,000

Total Stockholders' Equity                         $ 115,000

Assuming that TLJ, Inc., is restricted from declaring dividends that would cause stockholders' equity to be less than total paid-in capital, what is the maximum amount of dividends TLJ, Inc.'s board could declare?

A) $70,000

B) $15,000

C) $25,000

D) $65,000

E) $10,000

Note: Please show the math for the answer.

Answer 1

Answer:

Answer is $15000 (Option B)

TLJ Inc. is restricted from declaring dividends that would cause stockholders equity to be less than total paid-in capital.

Total Stockholders equity is $115000 and paid-in capital is $100000.

Total Stockholders equity should not be less than paid-in capital after declaring the dividend. It means it can be equal to paid-in capital that is $100000.

Hence, the maximum amount of dividend TLJ Inc.'s board could declare is $15000 ($115000-$100000).