Question

On August 21, 2013, the board of directors of Best Buy announced that the firm’s next quarterly cash dividend would be $0.17 per share, payable October 1, 2013 to shareholders of record on Tuesday, September 10, 2013.The stock would begin trading ex-dividend on Friday, September 6, 2013. At the time, Best Buy had 340,967,179 shares of common stock outstanding, so the total dividend would be $57,964,420. Before the dividend was declared, the key accounts of the firm were as follows (dollar values quoted in thousands): –Cash: $680,000 –Dividends payable: $0 –Retained earnings: $3,395,000

a.When the dividend was announced by the directors, almost $58 million of the retained earnings ($0.17 per share  341 million shares) was transferred to the dividends payable account. The key accounts thus became

b.When Best Buy actually paid the dividend on October 26, this produced the following balances in the key accounts of the firm:

Answer 1

Ans a -

(in thousands)

Cash = $680,000

Dividends Payable = 0

Retained Earnings = $3,395,000

Dividend Announced - $58 million of the retained earnings was transferred to the dividends account

Cash = $680,000

Dividends Payable = $57,964 (0.17* 340,967,179)

Retained Earnings = $3,337,036

Ans b -

When Actually Paid the Dividend

Cash = $680,000 - $57,964 = 622,036

Dividends Payable = 0

Retained Earnings = $3,337,036

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