Question 1

Corporations may choose to distribute stock dividends in order to:

Accepted Answer

Corporations distribute stock dividends to increase the number of shares outstanding, which typically reduces the market price per share, making the stock more affordable and potentially more attractive to investors.

Question 2

Payment of a cash dividend usually follows the:

Accepted Answer

The answer of Payment of a cash dividend usually follows...

Question 3

Fortune, Inc. declares a 10% common stock dividend when it has 20,000 shares of $10 par value common stock outstanding. If the market value of the common stock is $25, the journal entry to record the stock dividend would include a:

Accepted Answer

The answer of Fortune, Inc. declares a 10% common stock...

Question 4

The journal entry on the date of record is:

Accepted Answer

The date of record is simply a date on which the company determines who are the shareholders entitled to receive the dividend. No actual transactions take place on this date, so there is no need for a journal entry.

Question 5

A share of 5% preferred stock has a par value of $50 and market value of $75. The owners of the preferred stock will receive a dividend of:

Accepted Answer

The dividend is 5% of the par value, which is $50. So the dividend is $2.50 per share.

Question 6

Wilson, Inc. has 5,000 shares of 5%, $100 par value, cumulative preferred stock and 75,000 shares of $1 par value common stock outstanding at December 31, 2012. What is the annual dividend on the preferred stock?

Accepted Answer

The annual dividend on the preferred stock is calculated as 5% of the par value ($100) multiplied by the number of shares (5,000). Therefore, 0.05 * $100 * 5,000 = $25,000.

Question 7

The per share amount usually given to a large stock dividend is:

Accepted Answer

The per share amount given in a large stock dividend is usually the par value of the stock, which represents the legal capital of the company. This is because stock dividends do not involve the distribution of cash to stockholders but rather the distribution of additional shares of stock. Therefore, the per share amount is based on the face value of the new shares issued.

Question 8

A stock dividend is considered small when it is a dividend of:

Accepted Answer

A small stock dividend is defined as a dividend of 25% or less of the corporation's issued stock.

Question 9

When a stock dividend is received, the stockholder would:

Accepted Answer

When a stock dividend is received, the stockholder would own more shares of stock. The company gives additional shares to the existing shareholders instead of paying in cash. This increases the number of shares the investor owns, but the value of each individual share stays the same. Therefore, stock dividend will not affect par value or market price per share, nor will it decrease retained earnings.

Question 10

Flanders, Inc. has 20,000 shares of preferred stock outstanding, with annual dividends paid at a rate of $2 per share. Flanders also has 40,000 shares of common stock outstanding. If Flanders, Inc. declares a $200,000 dividend, each outstanding share of common stock would receive:

Accepted Answer

The answer of Flanders, Inc. has 20,000 shares of preferred...

Question 11

The declaration of a cash dividend:

Accepted Answer

The declaration of a cash dividend increases the liability of the company to pay out the dividend to its shareholders, which results in a decrease in stockholders' equity. Therefore, option D is the correct choice.

Question 12

Ludington Corporation has 1,000 shares of 6%, $50 par value, cumulative preferred stock and 25,000 shares of $1 par value common stock outstanding on December 31, 2011 and December 31, 2012. The board of directors declared and paid a $2,000 dividend in 2011. In 2012, $12,000 of dividends are declared and paid. What are the dividends received by the common stockholders in 2012?

Accepted Answer

Since the preferred stock is cumulative, it must receive all missed dividends before any dividends can be paid to common stockholders. In 2011, only $2,000 was paid in dividends, so the remaining $4,000 (preferred dividend of $6,000 - $2,000 paid) must be paid before any dividends can be paid to common stockholders. In 2012, $12,000 in dividends are declared and paid, so $6,000 goes to pay the remaining preferred dividends from 2011 and $6,000 goes to pay the preferred dividends for 2012. This leaves no money for common stock dividends in 2012.

Question 13

Mr. Smith, a shareholder in the Wolverine Corporation, owns 1,000 shares of their common stock. Mr. Smith receives a 5% stock dividend. After the stock dividend, Mr. Smith will have a:

Accepted Answer

The answer of Mr. Smith, a shareholder in the Wolverine...

Question 14

Supreme Foods Corporation has 2,000 shares of 6%, $50 par value, cumulative preferred stock and 150,000 shares of $1 par value common stock outstanding at December 31, 2012 and December 31, 2011. In 2011 a $5,000 dividend was declared and paid. In 2012, $32,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2012?

Accepted Answer

The answer of Supreme Foods Corporation has 2,000 shares of...

Question 15

Mr. Smith, a shareholder in the Wolverine Corporation, owns 1,000 shares of their common stock, which represents 30% of the outstanding common stock of Wolverine Corporation. Mr. Smith receives a 10% stock dividend. After the stock dividend, what is Mr. Smith's ownership in Wolverine Corporation's common stock?

Accepted Answer

A stock dividend increases the number of shares owned but does not change the percentage of ownership. Mr. Smith's ownership remains at 30%.

Question 16

Declaring and distributing stock dividends:

Accepted Answer

When a corporation declares and distributes stock dividends, it does not affect the total stockholders' equity. Instead, the retained earnings account is reduced, and the common stock account is increased. Therefore, the total stockholders' equity remains the same. Option A is incorrect because stock dividends are paid in the form of additional shares, not cash. Option B is incorrect because distributing stock dividends does not increase liabilities; rather, it reduces retained earnings. Option C is incorrect because stock dividends do not reduce total assets; instead, it changes the composition of total equity.

Question 17

A small stock dividend will:

Accepted Answer

A small stock dividend does not affect total assets or total owners' equity; it only reallocates amounts within equity by transferring from retained earnings to common stock and additional paid-in capital.

Question 18

When preferred stock is cumulative, preferred dividends not paid in a year are:

Accepted Answer

When preferred stock is cumulative, preferred dividends not paid in a year are considered dividends in arrears. This means that they accumulate and must be paid in the future before any common stock dividends are paid. They are not considered distributions of earnings, but rather a liability of the company to its preferred stockholders. They will eventually be paid to the preferred stockholders unless the company goes bankrupt.

Question 19

Fortune, Inc. declares a 10% common stock dividend when it has 20,000 shares of $10 par value common stock outstanding. If the market value of the common stock is $25, the journal entry to record the stock dividend would include a:

Accepted Answer

The stock dividend is 10% of 20,000 shares, which is 2,000 shares. The market value is $25 per share, so the total value is 2,000 shares x $25 = $50,000. The journal entry would debit Retained Earnings for the total market value of the dividend.

Question 20

Before a company can pay dividends to the common stockholders, the owners of cumulative preferred stock must receive:

Accepted Answer

Cumulative preferred stockholders must receive all dividends in arrears before common stockholders can receive any dividends. They must also receive the current year's dividends. Therefore, the correct choice is C, which states that they must receive all dividends in arrears plus the current year's dividends.

Quiz 10: Stockholders Equity

Corporations may choose to distribute stock dividends in order to:

Payment of a cash dividend usually follows the:

Fortune, Inc. declares a 10% common stock dividend when it has 20,000 shares of $10 par value common stock outstanding. If the market value of the common stock is $25, the journal entry to record the stock dividend would include a:

The journal entry on the date of record is:

A share of 5% preferred stock has a par value of $50 and market value of $75. The owners of the preferred stock will receive a dividend of:

Wilson, Inc. has 5,000 shares of 5%, $100 par value, cumulative preferred stock and 75,000 shares of $1 par value common stock outstanding at December 31, 2012. What is the annual dividend on the preferred stock?

The per share amount usually given to a large stock dividend is:

A stock dividend is considered small when it is a dividend of:

When a stock dividend is received, the stockholder would:

Flanders, Inc. has 20,000 shares of preferred stock outstanding, with annual dividends paid at a rate of $2 per share. Flanders also has 40,000 shares of common stock outstanding. If Flanders, Inc. declares a $200,000 dividend, each outstanding share of common stock would receive:

The declaration of a cash dividend:

Mr. Smith, a shareholder in the Wolverine Corporation, owns 1,000 shares of their common stock. Mr. Smith receives a 5% stock dividend. After the stock dividend, Mr. Smith will have a:

Declaring and distributing stock dividends:

A small stock dividend will:

When preferred stock is cumulative, preferred dividends not paid in a year are:

Fortune, Inc. declares a 10% common stock dividend when it has 20,000 shares of $10 par value common stock outstanding. If the market value of the common stock is $25, the journal entry to record the stock dividend would include a:

Before a company can pay dividends to the common stockholders, the owners of cumulative preferred stock must receive: