Dividend distribution
You have recently been appointed CEO of Dumbledore Ltd., a wholesale distributor of magic supplies. One day your CFO reminds you that next week you will have to make recommendations to the board of directors regarding this year's annual dividend. This catches you totally by surprise. Luckily, the CFO was kind enough to provide you with some additional information. He shows you the projected income statement and balance sheet, without the effect of any dividend declaration. Other information:
1) Last year, the net income was $ 3,500,000, and $ 3,300,000 cash dividends were paid.
2) Dumbledore has two debt agreements that call for the corporation to maintain at least $ 2,500,000 in retained earnings, as well as maintain a debt-to-total-assets ratio of no more than 70%.
3) There has been no change in the number of shares outstanding during the year.
You start to think about the recommendations you are going to make. It is the end of November, and historically the corporation has declared dividends five days before the end of the year.
Instructions
a) What factors will limit the amount to be distributed as dividends?
b) What are important considerations in your decision? What would you recommend? Provide any journal entry that is related to your decision.

Question

Dividend distribution
You have recently been appointed CEO of Dumbledore Ltd., a wholesale distributor of magic supplies. One day your CFO reminds you that next week you will have to make recommendations to the board of directors regarding this year's annual dividend. This catches you totally by surprise. Luckily, the CFO was kind enough to provide you with some additional information. He shows you the projected income statement and balance sheet, without the effect of any dividend declaration.  Other information:
1) Last year, the net income was $ 3,500,000, and $ 3,300,000 cash dividends were paid.
2) Dumbledore has two debt agreements that call for the corporation to maintain at least $ 2,500,000 in retained earnings, as well as maintain a debt-to-total-assets ratio of no more than 70%.
3) There has been no change in the number of shares outstanding during the year.
You start to think about the recommendations you are going to make. It is the end of November, and historically the corporation has declared dividends five days before the end of the year.
Instructions 
a) What factors will limit the amount to be distributed as dividends?
b) What are important considerations in your decision? What would you recommend? Provide any journal entry that is related to your decision.

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The Answer of Dividend distribution
You have recently been appointed CEO of Dumbledore Ltd., a wholesale distributor of magic supplies. One day your CFO reminds you that next week you will have to make recommendations to the board of directors regarding this year's annual dividend. This catches you totally by surprise. Luckily, the CFO was kind enough to provide you with some additional information. He shows you the projected income statement and balance sheet, without the effect of any dividend declaration.  Other information:
1) Last year, the net income was $ 3,500,000, and $ 3,300,000 cash dividends were paid.
2) Dumbledore has two debt agreements that call for the corporation to maintain at least $ 2,500,000 in retained earnings, as well as maintain a debt-to-total-assets ratio of no more than 70%.
3) There has been no change in the number of shares outstanding during the year.
You start to think about the recommendations you are going to make. It is the end of November, and historically the corporation has declared dividends five days before the end of the year.
Instructions 
a) What factors will limit the amount to be distributed as dividends?
b) What are important considerations in your decision? What would you recommend? Provide any journal entry that is related to your decision.

Dividend Distribution You Have Recently Been Appointed CEO of Dumbledore Ltd., a Ltd