Question

Firm A’s Articles of Incorporation authorize it to issue 1,000,000 shares of common stock. On March 1, 2018, Firm A declares a cash dividend of $0.10 per share of common stock. On the record date, Firm A has issued 850,000 shares of common stock and holds 180,000 shares of treasury stock. How much cash will Firm A pay to satisfy the dividend?

Answer 1

Cash dividend declared and paid is on issued shares excluding treasury shares. Hence in the given case $0.10 cash dividend per common share will be paid on 670,000 shares only. The total cash required to satisfy the dividend will be $67,000(670,000*$0.10). Treasury shares are the share which are repurchased by the firm and is shown as deduction from stockholders equity. Hence they are not entitled to any dividend. Only rest of the issued shares are entitled to cash dividend.