Tangshan Mining has common stock at par of $200,000, paid-in capital in excess of par of $400,000, and retained earnings of $280,000. In states where the firm's legal capital is defined as the par value of common stock, the firm could pay out ________ in cash dividends without impairing its capital.
A) $200,000
B) $680,000
C) $600,000
D) $880,000

Question

Quizplus · Accepted Answer

In states where the firm's legal capital is defined as the par value of common stock, the firm could pay out dividends from its paid-in capital in excess of par and retained earnings without impairing its capital. Therefore, the firm could pay out $400,000 (paid-in capital in excess of par) + $280,000 (retained earnings) = $680,000 in cash dividends without impairing its capital.

Tangshan Mining Has Common Stock at Par of $200,000, Paid-In