The Caterpillar Cocoon Company began 2020 with the following equity section: Contributed Capital: 50,000...
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Accounting
The Caterpillar Cocoon Company began 2020 with the following equity section:
Contributed Capital:
50,000 common shares $260,000
Retained Earnings 95,000
Total Equity $355,000
At the end of the year, there have been no share transactions but it has had a very difficult year, with an after-tax loss of $45,000. The Chief Executive Officer has ben told by some shareholders that they are going to fire him. Since he is concerned for his job he has recommended that the Board of Directors declare a dividend of $2 per share to make shareholders happy.
As the Chief Accountant for the board, you have been asked for advice on paying a $2 dividend. What do you tell them?
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