Question

The charter of a corporation provides for the issuance of 120,000 shares of common stock. Assume that 35,000 shares were originally issued and 3,300 were subsequently reacquired. What is the amount of cash dividends to be paid if a $4-per-share dividend is declared?

Answer 1

Dividend is paid in the amount of shares that are issue and outstanding at the time of Dividend Declaration and not on all the shares issue by the company which clearly means that shares purchased or acquired back before the dividend declaration should not be considered for the purpose of calculating Amount of Dividend.

In the present Question itself 35,000 share out of the total authorised capital of the company and 3300 shares were acquired back Before Dividend Declaration then shares which are eligible for the Dividends are Calculated as follows

Shares on which Dividend is to be paid = Shares Issued - Shares Acquired Back

= 35,000 - 3,300

= 31,700 Shares

Cash Dividend to be paid = Shares on Which Dividend is to be paid * Cash Dividend per Share

Cash Dividend per Share = $ 4

Cash Dividend to be paid = 31,700 * $ 4 per Share

Cash Dividend to be paid = $ 126,800