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 total of par value and paid-in capital in excess of par, the firm could pay out ________ in cash dividends without impairing its capital.
A) $280,000
B) $400,000
C) $480,000
D) $600,000

Question

Quizplus · Accepted Answer

Legal capital is defined as the sum of the stock's par value and the paid-in capital in excess of par. For Tangshan Mining, this is $200,000 (par value) + $400,000 (paid-in capital in excess of par) = $600,000. The firm can pay dividends from its retained earnings without impairing its capital, which amounts to $280,000.

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