Question 1

Depending on its size, a stock dividend may cause the company's market price to rise because of the increased supply of stock.

Accepted Answer

While a stock dividend increases the number of outstanding shares, it does not change the overall value of the company. Therefore, the market price per share should stay the same.

Question 2

Hometown Grocery, Inc. has 41,000 shares of common stock outstanding and 5000 shares of preferred stock outstanding. The common stock is $6.00 par value; the preferred stock is 4% noncumulative with a $100.00 par value. On October 15, 2018, the company declares a total dividend payment of $55,000. What is the amount of dividend that will be paid for each share of common stock? (Round your answer to the nearest cent.)

Accepted Answer

Dividend paid to the common stockholders = $55,000.00 - [($100.00 × 4%) × 5000] =
$ 11ea8873_d4d4_6ffa_bb89_ab5ec19beedc_TB5026_00 Dividends per common share = $35,000.00 / 41,000 = $0.85

Question 3

Which of the following is the correct description of dividends in arrears?

Accepted Answer

Dividends in arrears refer to the cumulative amount of dividends that were not paid in previous years. This means that if a company has not paid dividends in the past, the amount owed to shareholders will accumulate over time until it is paid out.

Question 4

On November 1, 2019, Stateside, Inc. declared a dividend of $3.00 per share. Stateside, Inc. has 20,000 shares of common stock outstanding and no preferred stock. The date of record is November 15, and the payment date is November 30, 2019. Provide the journal entry needed on November 30. Omit explanation.

Accepted Answer

The answer of On November 1, 2019, Stateside, Inc. declared...

Question 5

Valley, Inc. has 9000 shares of preferred stock outstanding. The preferred stock has a $90 par value, a 14% dividend rate, and is noncumulative. If Valley has sufficient funds to pay dividends, what is the total amount of dividends that will be paid out to preferred stockholders?

Accepted Answer

Total dividend amount = number of preferred shares * par value * dividend rate
Total dividend amount = 9000 * $90 * 0.14 = $113,400. Therefore, the answer is B.

Question 6

A corporation has 20,000 shares of 17%, $50 par cumulative preferred stock outstanding and 25,000 shares of no-par common stock outstanding. Preferred dividends of $36,000 are in arrears. At the end of the current year, the corporation declares a dividend of $208,000. How is the dividend allocated between preferred and common stockholders?

Accepted Answer

Dividend to preferred stockholders = ($50 × 17% × 20,000 shares) = $170,000 current year + $36,000 in arrears = $206,000
Dividend to common stockholders = $208,000 - $206,000 = $2000

Question 7

Stock dividends are distributed to stockholders in proportion to the number of shares that stockholders already own.

Accepted Answer

This is correct. Stock dividends are distributed based on the number of shares a stockholder owns, with a higher number of shares resulting in a higher amount of dividends received.

Question 8

A corporation has 10,000 shares of 20%, $60 par cumulative preferred stock outstanding and 32,000 shares of no-par common stock outstanding. Preferred dividends of $22,000 are in arrears. At the end of the current year, the corporation declares a dividend of $236,000. What is the dividend per share for preferred stock and for common stock? (Round your answer to the nearest cent.)

Accepted Answer

First, calculate the annual dividend for preferred stock: 10,000 shares * $60 * 20% = $120,000. Add the arrears of $22,000 for a total of $142,000 needed for preferred stock. The remaining $236,000 - $142,000 = $94,000 is for common stock. Preferred dividend per share = $142,000 / 10,000 = $14.20. Common dividend per share = $94,000 / 32,000 = $2.94.

Question 9

Healthy Farmer, Inc. has 46,000 shares of common stock outstanding and 3000 shares of preferred stock outstanding. The common stock is $0.03 par value; the preferred stock is 7% noncumulative with a $100.00 par value. On October 15, 2019, the company declares a total dividend payment of $43,000. What is the total amount of dividends that will be paid to the common stockholders?

Accepted Answer

First, we have to calculate the total amount of dividends to be paid for the preferred stockholders:
3000 shares of preferred stock * $100 par value * 7% dividend rate = $21,000

Then, we subtract the amount paid to the preferred stockholders from the total dividend payment to get the amount to be paid to the common stockholders:
$43,000 total dividend payment - $21,000 paid to preferred stockholders = $22,000 to be paid to common stockholders.

Therefore, the correct answer is B) $22,000

Question 10

On November 1, 2018, Worldwide, Inc. declared a dividend of $3.00 per share. Worldwide, Inc. has 20,000 shares of common stock outstanding and no preferred stock. Prepare the journal entry to record this transaction. Omit explanation.

Accepted Answer

The answer of On November 1, 2018, Worldwide, Inc. declared...

Question 11

Stock dividends have no effect on the total amount of stockholders' equity.

Accepted Answer

Stock dividends redistribute portions of retained earnings to additional shares of stock, thus not changing the total stockholders' equity but altering its composition between retained earnings and paid-in capital.

Question 12

Jameson Company earned net income of $75,000 during the year ended December 31, 2018. On December 20, Jameson declared the annual cash dividend on its 8% noncumulative preferred stock (par value, $150,000) and a $0.50 per share cash dividend on its common stock (45,000 shares). Jameson then paid the dividends on January 10, 2019.
Prepare the journal entries to record the declaration and the distribution of the dividends. Explanations are not required.

Accepted Answer

The answer of Jameson Company earned net income of $75,000...

Question 13

On the date of record for a dividend, the company ________.

Accepted Answer

On the date of record for a dividend, the company determines who owns the shares of stock on that date. This information is then used to distribute dividend payments to the appropriate stockholders at a later date. The company does not issue new shares of stock or disburse dividend payments on the date of record, but it does record the dividend payable amount on that date.

Question 14

Colorful, Inc. was incorporated on January 1, 2016. Colorful issued 15,000 shares of common stock and 800 shares of preferred stock on that date. The preferred stock is cumulative, $100 par, with a 12% dividend rate. Colorful has not paid any dividends yet. In 2019, Colorful had its first profitable year, and on November 1, 2019, Colorful declared a total dividend of $44,000. What is the total amount that will be paid to common stockholders?

Accepted Answer

The preferred stockholders are entitled to dividends for 2016, 2017, 2018, and 2019 before common stockholders receive any dividends. The annual dividend for preferred stock is 800 shares * $100 * 12% = $9,600. For four years, this totals $38,400. The remaining $5,600 ($44,000 - $38,400) is paid to common stockholders.

Question 15

XD7, Inc. has 50,000 shares of common stock outstanding and 2,000 shares of preferred stock outstanding. The common stock has a $1.00 par value. The preferred stock has a $100 par value, a 5% dividend rate, and is noncumulative. On October 31, 2018, the company declares the annual preferred dividend and dividends of $0.25 per share for common. Prepare the journal entry for the declaration of dividends. Omit explanation.

Accepted Answer

The answer of XD7, Inc. has 50,000 shares of common...

Question 16

Organic Produce, Inc. has 49,000 shares of common stock outstanding and 6000 shares of preferred stock outstanding. The common stock is $0.08 par value; the preferred stock is 4% noncumulative with a $100.00 par value. On October 15, 2019, the company declares a total dividend payment of $56,000. How much dividend will be paid to the preferred stockholders?

Accepted Answer

Dividend paid to the preferred stockholders = ($100.00 × 4%) × 6000 = $24,000

Question 17

Define the following dividend dates for a cash dividend. For each date, state whether a journal entry should be recorded. In addition, if a journal entry should be record, state the effect on assets, liabilities or equity.
 $$\begin{array} { | l | l | l | l | } 
\hline \text { Term } & \text { Definition } & \begin{array} { l } 
\text { Should an entry } \
\text { be recorded? }
\end{array} & \begin{array} { l } 
\text { If so, what is the effect } \
\text { on the accounting } \
\text { equation? }
\end{array} \
\hline \text { Declaration date } & & & \
\
\
\hline \text { Date of record } & & & \
\
\
\hline \text { Payment date } & & & \
& & & \
& & & \
& & & \
\hline
\end{array}$$

Accepted Answer

The answer of Define the following dividend dates for a...

Question 18

Electric, Inc. was incorporated on January 1, 2016. Electric issued 4000 shares of common stock and 1200 shares of preferred stock on that date. The preferred stock is cumulative, $100 par, with an 12% dividend rate. Electric has not paid any dividends yet. In 2019, Electric had its first profitable year, and on November 1, 2019, Electric declared a total dividend of $63,000. What is the total amount that will be paid to preferred shareholders?

Accepted Answer

The preferred shareholders are entitled to their dividends before common shareholders because the preferred stock is cumulative. The annual dividend per share for preferred stock is $100 * 12% = $12. With 1200 shares, the annual dividend is $12 * 1200 = $14,400. Since dividends have not been paid since incorporation and it's now 2019, that's 4 years of dividends, so $14,400 * 4 = $57,600.

Question 19

From its inception through the year of 2017, First Mart, Inc. was profitable and made strong dividend payments each year. In the year 2018, First Mart had major losses and paid no dividends. In 2019, the company started making large profits again, and they were able to pay dividends to all shareholders-both common and preferred. There are 2000 shares of cumulative, 10% preferred stock outstanding. The preferred stock has a par value of $100. What is the total amount of dividends that should be paid to the preferred stockholders in December, 2019?

Accepted Answer

Cumulative preferred stock means that if any dividends are missed, they must be paid out to preferred shareholders before any dividends can be paid to common shareholders. Since dividends were not paid in 2018, the company owes an additional year of dividends to preferred shareholders. The annual dividend per share is 10% of the $100 par value, which is $10 per share. With 2000 shares, the annual dividend is $20,000. For two years (2018 and 2019), this totals $40,000.

Question 20

With a stock dividend, the total number of shares issued and outstanding increases, and the percentage of total ownership of individual stockholders also increases.

Accepted Answer

With a stock dividend, the total number of shares issued and outstanding increases, but the percentage of total ownership of individual stockholders remains the same because the increase in shares is proportional across all shareholders.

Quiz 13: Stockholders Equity