I need help with these finance questions asap (1 Viewer)

[muhahahahahaha]

Hey guys,
Im having some trouble with two questions relating to dividends.
The Howe Company’s shareholders’ equity account is as follows:

Ordinary shares (400 000 shares)	$2 600 000
Retained earnings	$1 900 000
Total shareholder’s equity	$4 500 000

The earnings available for ordinary shareholders from this period’s operations are $100 000, which have been included as part of the $1.9 million retained earnings.

1. What is the maximum dividend per share the firm can pay? (assume that legal capital includes all paid up capital).

1. If the firm has $160 000 in cash, what is the largest per-share dividend it can pay without borrowing?
2. Indicate the accounts and charges, if any, that will result if the firm pays the dividends indicated in parts a and b.
3. Indicate the effects of an $80 000 cash dividend on shareholders’ equity.

AND...

1. Suppose an individual subject to a 38.5 per cent marginal rate of income tax has 1,000 shares in a company that is paying a fully-franked dividend of 28 cents per share. If the company tax rate is 30%:

1. Calculate the individual’s taxable income due to the dividend?

1. What tax credit can the individual claim due to the franked dividends?
2. What is the tax on the taxable income due to the dividend?
3. What tax, if any, is payable by the individual out of the cash dividend?

Thank you

 

[Shadowdude]

eww accounting

but uhh...

1. So if the company has 400 000 shares and $100 000 available to distribute, wouldn't it be:

$100 000/400 000 = $0.25 per share of dividend

2. If the firm has $160 000 in cash, and 400 000 shares - wouldn't it be:

$160 000/400 000 = $0.40 dividend per share

3. Is that just writing the journal entry for the cash dividend?


can't be bothered doing the rest (read: i can't do the rest because it's too hard )

 

[muhahahahahaha]

Um I think so... I think question 3 refers to what will happen had there been an $80 000 cash dividend on shareholder's equity.

Are you sure of those answers shadowdude??

I finished one question from the ones you couldnt be bothered doing lol but thanks, ill search the process of figuring out the answers for the second part.

 

[Shadowdude]

Pretty sure. Given the information. I mean, you can always cross reference my solution to the question so you can see if I went wrong.

So for 1, they say "The earnings available for ordinary shareholders from this period’s operations are $100 000" and

"The Howe Company’s shareholders’ equity account is as follows:


Ordinary shares (400 000 shares): $2 600 000"

so 400 000 shares, $100k available...


And I think 3 might be:

DR Retained Earnings $80k (???)
CR Cash $80k

 

[muhahahahahaha]

This is too hard..I cant figure it out..
I figured out..
This out..
2.What is the tax on the taxable income due to the dividend?

The answer is..
The actual cash dividend received is 1000 x 0.28 = $280
The franking credit will be 1000 x 0.3 = 300
300-280= 20. Therefore the franking credit will be $20. The shareholder would have to add $300 (280 + 20) to taxable income. This attracts additional tax of 300 x $0.385 = $115.50. This amount less the $20 franking credit leaves an additional tax bill of $95.50 to be paid by the shareholder who received the dividend. The net increase in income as a result of this dividend is $280 - $95.50 = $184.50 in the hands of the shareholder after tax at the marginal rate of $0.385.


But the rest halp please if anyone knows the answer to these questions
thank you!

 

[Shadowdude]

What other questions? They seem like the answers for:

1.Suppose an individual subject to a 38.5 per cent marginal rate of income tax has 1,000 shares in a company that is paying a fully-franked dividend of 28 cents per share. If the company tax rate is 30%:


1.Calculate the individual’s taxable income due to the dividend?


1.What tax credit can the individual claim due to the franked dividends?
2.What is the tax on the taxable income due to the dividend?
3.What tax, if any, is payable by the individual out of the cash dividend?

 

[muhahahahahaha]

these questions..
2.Indicate the accounts and charges, if any, that will result if the firm pays the dividends indicated in parts a and b.
3.Indicate the effects of an $80 000 cash dividend on shareholders’ equity.

 

[muhahahahahaha]

I actually found the complete answer to one of the questions online lol..
still stuck on..
1.Suppose an individual subject to a 38.5 per cent marginal rate of income tax has 1,000 shares in a company that is paying a fully-franked dividend of 28 cents per share. If the company tax rate is 30%:


1.Calculate the individual’s taxable income due to the dividend?


1.What tax credit can the individual claim due to the franked dividends?
2.What is the tax on the taxable income due to the dividend?
3.What tax, if any, is payable by the individual out of the cash dividend?