18 are there legal restrictions on paying out the funds to the stockholders why Since initial contributed capital theoretically belongs to the stockholders Cred itors have extended credit on the assumption that a given capital base would remain intact throughout the life of a loan. While they may not object to the payment of dividends from past and current earnings, they must have the protection of keeping contributed capital in place 18-6 Discuss how desire for control may influence a firm,s willingness to pay dividends Management's desire for control could imply that a closely held firm should avoid dividends to minimize the need for outside financing. For a larger firm posion nrowor y have to pay dividends in order to maintain their current keeping stockholders happy If you buy stock on the ex-dividend date, will you receive the upcoming quarterly dividend? No, the old stockholder receives the upcoming quarterly dividend. Of course, if you continue to hold the stock, you will receive the next dividend 18-8 How is a stock split(versus a stock dividend )treated on the financial statements of a corporation? For a stock split, there is no transfer of funds, but merely a-reduction in par value and a-proportionate increase in the number of shares outstanding I mpact of a Stock Split efo After Common stock(1,000,000 shares at $10 par)(2,000,000 shares at $5 par) CopyrightC 2005 by The McGran-Hill Companies, Inc. S-628Copyright © 2005 by The McGraw-Hill Companies, Inc. S-628 18-5. Since initial contributed capital theoretically belongs to the stockholders, why are there legal restrictions on paying out the funds to the stockholders? Creditors have extended credit on the assumption that a given capital base would remain intact throughout the life of a loan. While they may not object to the payment of dividends from past and current earnings, they must have the protection of keeping contributed capital in place. 18-6. Discuss how desire for control may influence a firm's willingness to pay dividends. Management's desire for control could imply that a closely held firm should avoid dividends to minimize the need for outside financing. For a larger firm, - management may have to pay dividends in order to maintain their current position through keeping stockholders happy. 18-7. If you buy stock on the ex-dividend date, will you receive the upcoming quarterly dividend? No, the old stockholder receives the upcoming quarterly dividend. Of course, if you continue to hold the stock, you will receive the next dividend. 18-8. How is a stock split (versus a stock dividend) treated on the financial statements of a corporation? For a stock split, there is no transfer of funds, but merely a –reduction in par value and a –proportionate increase in the number of shares outstanding. Impact of a Stock Split Before After Common stock (1,000,000 shares at $10 par) (2,000,000 shares at $5 par)