Dividends

Cash dividends may be paid by your parent company to external stockholders. A  bond covenant, however, provides that the dividends paid in any quarter, taken together with dividends paid in the previous three quarters, may not exceed the total amount of earnings in the previous four quarters of operations. In addition, the board of directors of your company has decided that even if all bonds should be repurchased, this restriction on dividend policy would be maintained.  Thus, if total earnings in the previous four quarters amounted to $200,000 and dividends already paid in the previous three quarters amounted to $190,000, then the maximum dividend that could be paid in the current quarter would amount to $10,000.  Enter the amount of cash dividends to be paid (in thousands of dollars) under Dividends  on the decision form.   If your firm decided to declare the permissible amount of $10,000 in dividends in the above example, you would enter 10 on the decision form.  Dividends may not be declared if the Accumulated Earnings account on the balance sheet has a negative balance.

Subsidiaries may declare dividends only to the parent company (these are not recorded on the decision form but paid automatically when funds are eligible to be transferred).

Maximum:  Net profits earned in the last 4 quarters minus dividends paid in the last 3 quarters

Maximum:  0, if retained earnings are negative

Limits:  0 to 9999 (in thousands of dollars)