menu
bartleby
search
close search
Hit Return to see all results
close solutoin list

Communication Motion Designs Inc. has paid quarterly cash dividends since 20Y7. These dividends have steadily increased from $0.05 per share to the latest dividend declaration of $0.50 per share. The board of directors would like to continue this trend and is hesitant to suspend or decrease the amount of quarterly dividends. Unfortunately, sales dropped sharply in the fourth quarter of 20Y8 due to worsening economic conditions and increased competition. As a result, the board is uncertain as to whether it should declare a dividend for the last quarter of 20Y8. On October 1, 20Y8, Motion Designs Inc. borrowed $4,000,000 from Valley National Bank to use in modernizing its retail stores and to expand its product line in response to changes in its industry. The terms of the 10-year, 6% loan require Motion Designs to do the following: • Pay monthly interest on the last day of the month • Pay $400,000 of the principal each October 1, beginning in 20Y9 • Maintain a current ratio (current assets ÷ current liabilities) of 2 • Maintain a minimum balance (a compensating balance) of $100,000 in its Valley National Bank account On December 31, 20Y8, $1,000,000 of the $4,000,000 loan had been disbursed in modernization of the retail stores and in expansion of the product line. Motion Designs Inc.’s balance sheet as of December 31, 20Y8, follows: The board of directors is scheduled to meet January 10, 20Y9, to discuss the results of operations for 20Y8 and to consider the declaration of dividends for the fourth quarter of 20Y8. The chairman of the board, Matt Cengage, has asked for your advice on the declaration of dividends. Write a brief memo to the chairman of the board, outlining the factors that the board should consider in deciding whether to declare a cash dividend.

BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

Solutions

Chapter
Section
BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 13, Problem 4CP
Textbook Problem
1 views

Communication

Motion Designs Inc. has paid quarterly cash dividends since 20Y7. These dividends have steadily increased from $0.05 per share to the latest dividend declaration of $0.50 per share. The board of directors would like to continue this trend and is hesitant to suspend or decrease the amount of quarterly dividends. Unfortunately, sales dropped sharply in the fourth quarter of 20Y8 due to worsening economic conditions and increased competition. As a result, the board is uncertain as to whether it should declare a dividend for the last quarter of 20Y8.

On October 1, 20Y8, Motion Designs Inc. borrowed $4,000,000 from Valley National Bank to use in modernizing its retail stores and to expand its product line in response to changes in its industry. The terms of the 10-year, 6% loan require Motion Designs to do the following:

  • • Pay monthly interest on the last day of the month
  • • Pay $400,000 of the principal each October 1, beginning in 20Y9
  • • Maintain a current ratio (current assets ÷ current liabilities) of 2
  • • Maintain a minimum balance (a compensating balance) of $100,000 in its Valley National Bank account

On December 31, 20Y8, $1,000,000 of the $4,000,000 loan had been disbursed in modernization of the retail stores and in expansion of the product line. Motion Designs Inc.’s balance sheet as of December 31, 20Y8, follows:

Chapter 13, Problem 4CP, Communication Motion Designs Inc. has paid quarterly cash dividends since 20Y7. These dividends have , example  1

  The board of directors is scheduled to meet January 10, 20Y9, to discuss the results of operations for 20Y8 and to consider the declaration of dividends for the fourth quarter of 20Y8. The chairman of the board, Matt Cengage, has asked for your advice on the declaration of dividends.

Chapter 13, Problem 4CP, Communication Motion Designs Inc. has paid quarterly cash dividends since 20Y7. These dividends have , example  2Write a brief memo to the chairman of the board, outlining the factors that the board should consider in deciding whether to declare a cash dividend.

To determine

Write a memo to the chairman of the board of Incorporation MD, explaining the factors before deciding whether to declare a cash dividend for the last quarter of 20Y8.

Explanation of Solution

Cash dividends: The amount of cash provided by a corporation out of its distributable profits to its shareholders as a return for the amount invested by them is referred as cash dividends.

Write a memo to the chairman of the board of Incorporation MD, explaining the factors before deciding whether to declare a cash dividend for the last quarter of 20Y8.

Memo

To,

Person LMC

The chairman of the board of directors

Incorporation MD

From,

Student A

Respected sir,

It is my pleasure to explain the factors before deciding on whether to declare a cash dividend for the last quarter of 20Y8.

Cash dividends have to be distributed out of retained earnings balance. So, first it is necessary that company should have enough balance of $90,000 (180,000 shares ×$0.50 per share) in retained earnings account to declare the cash dividend. As on December 31, 20Y8, Incorporation MD’s balance in retained earnings is $4,630,000. Retained earnings balance of $4,630,000 is more than enough to cover the declaration of $90,000 cash dividend in total.

After declaration of cash dividend, Incorporation MD should have sufficient cash balance to pay the cash dividend as declared. As on December 31, 20Y8, Incorporation MD’s balance in cash account is $250,000, out of which $100,000 has to be maintained as minimum cash balance as per loan agreement with bank.  Thereby, Incorporation MD can use remaining balance of ($250,000$100,000) $150,000 cash. Now, it is questionable that unless the cash balance can be expected to increase in near future, whether the company’s cash balance is large enough to manage both the payment of cash dividend and day-to-day operations of the business.

As well as, it is necessary to look into the working capital and the effect of plant expansion on the current ratio requirement of the loan

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Chapter 13 Solutions

Financial Accounting
Show all chapter solutions
add
Ch. 13 - Dividends per share Reinhardt Furniture Company...Ch. 13 - Dividends per share Zero Calories Company has...Ch. 13 - Entries for issuing stock On May 23, Stoltz Realty...Ch. 13 - Entries for issuing stock On January 22, Zentric...Ch. 13 - Entries for cash dividends The declaration,...Ch. 13 - Entries for cash dividends The declaration,...Ch. 13 - Entries for stock dividends Pro-Builders...Ch. 13 - Entries for stock dividends Antique Buggy...Ch. 13 - Entries for treasury stock On January 31,...Ch. 13 - Entries for treasury stock On May 27, Hydro...Ch. 13 - Reporting stockholders equity Using the following...Ch. 13 - Reporting stockholders equity Using the following...Ch. 13 - Retained earnings statement Rockwell Inc. reported...Ch. 13 - Retained earnings statement Noric Cruises Inc....Ch. 13 - Earnings per share Financial statement data for...Ch. 13 - Earnings per share Financial statement data for...Ch. 13 - Dividends per share Imaging Inc., a developer of...Ch. 13 - Dividends per share Lightfoot Inc., a software...Ch. 13 - Entries for issuing par stock On October 31,...Ch. 13 - Entries for issuing no-par stock On February 12,...Ch. 13 - Issuing stock for assets other than cash On April...Ch. 13 - Selected stock transactions Alpha Sounds Corp., an...Ch. 13 - Issuing stock Willow Creek Nursery, with an...Ch. 13 - Issuing stock Work Place Products Inc., a...Ch. 13 - Entries for cash dividends The declaration,...Ch. 13 - Entries for stock dividends Senior Life Co. is an...Ch. 13 - Effect of stock split Copper Grill Restaurant...Ch. 13 - Effect of cash dividend and stock split Indicate...Ch. 13 - Selected dividend transactions, stock split...Ch. 13 - Treasury stock transactions Lava Lake Inc. bottles...Ch. 13 - Treasury stock transactions Lawn Spray Inc....Ch. 13 - Treasury stock transactions Biscayne Bay Water...Ch. 13 - Reporting paid-in capital The following accounts...Ch. 13 - Stockholders Equity section of balance sheet The...Ch. 13 - Stockholders Equity section of balance sheet...Ch. 13 - Retained earnings statement Sumter Pumps...Ch. 13 - Stockholders Equity section of balance sheet List...Ch. 13 - Statement of stockholders equity The stockholders...Ch. 13 - EPS Junkyard Arts, Inc., had earnings of 316,000...Ch. 13 - EPS Pacific Gas and Electric Company is a large...Ch. 13 - EPS Caterpillar Inc. and Deere Company are two...Ch. 13 - Dividends on preferred and common stock Pecan...Ch. 13 - Stock transactions for corporate expansion On...Ch. 13 - Selected stock transactions The following selected...Ch. 13 - Entries for selected corporate transactions Morrow...Ch. 13 - Entries for selected corporate transactions...Ch. 13 - Dividends on preferred and common stock Yosemite...Ch. 13 - Stock transaction for corporate expansion Pulsar...Ch. 13 - Selected stock transactions Diamondback Welding ...Ch. 13 - Entries for selected corporate transactions Nav-Go...Ch. 13 - Entries for selected corporate transactions West...Ch. 13 - Ethics in Action Tommy Gunn is a division manager...Ch. 13 - Ethics in Action Lou Hoskins and Shirley Crothers...Ch. 13 - Communication Motion Designs Inc. has paid...Ch. 13 - Ethics in Action Bernie Ebbers, the CEO of...Ch. 13 - Issuing stock Epstein Engineering Inc. began...

Additional Business Textbook Solutions

Find more solutions based on key concepts
Show solutions add
Explain how absolute advantage and comparative advantage differ.

Essentials of Economics (MindTap Course List)

ADDITIONAL FUNDS NEEDED Morrissey Technologies Inc.s 2014 financial statements are shown here. Morrissey Techno...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)