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 of common stock, 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

The firm's legal capital is $600,000 (par value of $200,000 plus paid-in capital of $400,000). Retained earnings of $280,000 can be paid out as dividends without impairing the legal capital.

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