1. Free flying aviation declared a 20 percent stock dividend that will be paid three weeks from today. Before the “payment”?
of stock dividend, the equity section of FFA’s balance sheet showed the following
Common stock (10,000 shares outstanding, $5 per value) $50,000
Additional paid-in capital 20,000
Retained earnings 30,000
Total common shareholders’ equity 100,000
The market value of FFA’s stock is $7.00 per share. Construct a pro forma balance sheet showing the effect of the stock
2. Widgets world earned $187,500 this years. The company strictly follows the residual dividend policy when paying
dividends. WW had determined that it needs a total of $250,000 for investment in capital budgeting projects this year. If the company’s debt-to asset ratio is
55 percent, what will its dividend payout ratio be this year?