Assume that Lawson Company has retained earnings of $16 million, paid in capital of $48million, and treasury stock at a cost of $12 million 1 Tabulate the effects of cash dividend payments of (a) $8 million, and (b) $2 million on retained earnings and total stockholders equity 2 Why do many states ...

1 In Millions of Dollars After Dividend Before Payments of Dividends a 8 b 2 Paidin ...

Assume that Lawson Company has retained earnings of $16 million, paid-in capital of $48million, and treasury stock

Question:

Assume that Lawson Company has retained earnings of $16 million, paid-in capital of $48 million, and treasury stock at a cost of $12 million.
1. Tabulate the effects of cash payments of (a) $8 million, and (b) $2 million on retained earnings and total stockholders’ equity.
2. Why do many states forbid the payment of dividends if retained earnings do not exceed the cost of any treasury stock on hand? Explain, using the numbers from your answer to requirement 1.

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...