How would Microsoft’s $40 billion stock buyback and cash dividend impact its balance sheet?

Microsoft Corporation (MSFT) recently announced plans to buy back up to $40 billion of its own stock.

In the same announcement on September 20, 2016, Microsoft also stated that it would be increasing the cash dividend by 8% for the dividend to be paid on December 8, 2016, to shareholders of record on November 17, 2016.

Questions

  1. What is a stock buyback? Why might Microsoft want have a stock buyback?
  2. What is the impact on assets, liabilities, and stockholders’ equity of a stock buyback?
  3. On what date would the dividend in the story become a liability for Microsoft?
  4. If an investor would purchase Microsoft stock on December 1, 2016, would that investor be entitled to the dividend that is to be paid on December 8, 2016? Explain.

Instructor Resources

These resources are provided to give the instructor flexibility for use of Accounting in the Headlines articles in the classroom. The blog posting itself can be assigned via a link to this site OR by distributing the student handout below. Alternatively, the PowerPoint file below contains a bullet point overview of the article and the discussion questions.

  • Student handout (pdf) (word) (contains entire blog posting + discussion questions)
  • PowerPoint file (brief article overview + discussion questions)

Creative Commons License

About Dr. Wendy Tietz, CPA, CMA, CGMA

Dr. Wendy Tietz is a professor of accounting at Kent State University in Kent, Ohio, USA. She is also a textbook author with Pearson Prentice-Hall.

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