Question 1

Which of the following statements regarding the date of a cash dividend declaration is not accurate?

Accepted Answer

Once a cash dividend has been declared, it cannot be rescinded by the corporation. Therefore, this statement is not accurate. The other statements are accurate and true.

Question 2

Indicate the respective effects of the declaration of a cash dividend on the following balance sheet sections:

Accepted Answer

The answer of Indicate the respective effects of the declaration...

Question 3

Win, Inc. has 10,000 shares of 7%, $100 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2018. If the board of directors declares a $70,000 dividend, the

Accepted Answer

Preferred stock dividends are paid before common stock dividends, and in this case, the preferred stock is cumulative, meaning that any missed dividends must be paid before common stock dividends can be paid. Therefore, the entire $70,000 dividend will be paid to the preferred shareholders, and no dividend will be paid to the common shareholders until any missed preferred dividends have been paid in full. Thus, choice B is correct.

Question 4

Township, Inc. has 10,000 shares of 5%, $100 par value, noncumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2017, and December 31, 2018. The board of directors declared and paid a $50,000 dividend in 2017. In 2018, $110,000 of dividends are declared and paid. What are the dividends received by the preferred and common shareholders in 2018?

Accepted Answer

The answer of Township, Inc. has 10,000 shares of 5%,...

Question 5

Which of the following is not a significant date with respect to dividends?

Accepted Answer

The incorporation date is the date on which a company is legally registered and formed, and it is not related to dividends. The declaration, record, and payment dates, on the other hand, are all significant dates with respect to dividends. The declaration date is when the company announces the upcoming dividend and sets the amount to be paid. The record date is when the company determines which shareholders are entitled to receive the dividend. The payment date is when the dividend is actually paid to the eligible shareholders.

Question 6

Aim, Inc., has 10,000 shares of 4%, $100 par value, noncumulative preferred stock and 40,000 shares of $1 par value common stock outstanding at December 31, 2018. There were no dividends declared in 2017. The board of directors declares and pays a $120,000 dividend in 2018. What is the amount of dividends received by the common stockholders in 2018?

Accepted Answer

The preferred stockholders receive $40,000 (10,000 shares x $100 par x 4%). The remaining $80,000 ($120,000 total dividend - $40,000 preferred dividend) is distributed to the common stockholders.

Question 7

Arm, Inc., has 10,000 shares of 5%, $100 par value, noncumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2018. If the board of directors declares a $200,000 dividend, the

Accepted Answer

Noncumulative preferred stock does not accumulate dividends if they are not paid in a given period. Therefore, the preferred stockholders do not receive any dividends until the common stockholders have received their dividend. The total dividend paid to the preferred stockholders is calculated as follows: 10,000 shares x $100 par value x 5% dividend rate = $50,000. The remaining amount of the dividend, $200,000 - $50,000 = $150,000 is then paid to the common stockholders. Therefore, the preferred stockholders will receive $50,000 and the common stockholders will receive $150,000.

Question 8

Dividends Payable is classified as a

Accepted Answer

Dividends Payable is an obligation to pay dividends to stockholders and is considered a current liability because it is expected to be paid within one year from the balance sheet date.

Question 9

On the dividend record date,

Accepted Answer

The answer of On the dividend record date,
...

Question 10

The cumulative effect of the declaration and payment of a cash dividend on a company's balance sheet is to

Accepted Answer

When a cash dividend is declared and paid, it results in a decrease in the company's cash balance (an asset) and a decrease in retained earnings (a component of stockholders' equity). This reduction in stockholders' equity decreases the overall total assets of the company. Therefore, the cumulative effect of the declaration and payment of a cash dividend on a company's balance sheet is to decrease stockholders' equity and total assets.

Question 11

Library, Inc. has 2,500 shares of 4%, $50 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2017, and December 31, 2018. The board of directors declared and paid a $3,000 dividend in 2017. In 2018, $18,000 of dividends are declared and paid. What are the dividends received by the preferred and common shareholders in 2018?

Accepted Answer

The answer of Library, Inc. has 2,500 shares of 4%,...

Question 12

Start Inc. has 5,000 shares of 5%, $100 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2018. What is the annual dividend on the preferred stock?

Accepted Answer

The answer of Start Inc. has 5,000 shares of 5%,...

Question 13

Marion, Inc. has 5,000 shares of 5%, $100 par value, noncumulative preferred stock and 20,000 shares of $1 par value common stock outstanding at December 31, 2018. There were no dividends declared in 2017. The board of directors declares and pays a $65,000 dividend in 2015. What is the amount of dividends received by the common stockholders in 2015?

Accepted Answer

The preferred stockholders receive 5% of $100 par value per share, which is $5 per share. With 5,000 shares, they receive $25,000. The remaining $40,000 of the $65,000 total dividend goes to the common stockholders.

Question 14

eris, Inc. has 1,000 shares of 6%, $10 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2018. What is the annual dividend on the preferred stock?

Accepted Answer

The annual dividend on the preferred stock is calculated as 6% of the par value per share. Therefore, 6% of $10 is $0.60 per share. With 1,000 shares, the total annual dividend is $0.60 * 1,000 = $600.

Question 15

Of the various dividends types, the two most common types in practice are

Accepted Answer

The two most common types of dividends in practice are cash dividends and small stock dividends. Cash dividends involve distributing cash to shareholders, while small stock dividends involve issuing additional shares of the company's stock, typically less than 20-25% of the existing shares.

Question 16

Which of the following statements about dividends is not accurate?

Accepted Answer

The board of directors is not obligated to declare dividends. It is their discretion whether or not to declare and distribute dividends to shareholders.

Question 17

Last Inc., has 2,000 shares of 6%, $50 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2018, and December 31, 2017. The board of directors declared and paid a $4,000 dividend in 2017. In 2018, $24,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2018?

Accepted Answer

Preferred stockholders have a cumulative dividend, meaning any unpaid dividends from prior years must be paid before any common stock dividends. Therefore, in 2018, the preferred stockholders must first receive the $4,000 dividend from 2017 that was not paid. This leaves $20,000 ($24,000 - $4,000) available for dividends in 2018.

The preferred stock pays a fixed dividend of 6% of the $50 par value, which equals $3 per share. There are 2,000 preferred shares outstanding, so the total dividends paid to the preferred stockholders in 2018 is:

$3 x 2,000 = $6,000

Therefore, the correct answer is (C) $8,000.

Question 18

Outstanding stock of the Zone Corporation included 20,000 shares of $5 par common stock and 5,000 shares of 6%, $10 par noncumulative preferred stock. In 2017, Zone declared and paid dividends of $2,000. In 2018, Zone declared and paid dividends of $6,000. How much of the 2018 dividend was distributed to preferred shareholders?

Accepted Answer

The preferred shareholders are entitled to a fixed dividend of 6% on the par value of their stock, which is $10 per share. Therefore, the total amount of dividends that must be paid to the preferred shareholders is:
5,000 preferred shares x $10 par value x 6% dividend rate = $3,000
Since $6,000 in dividends was paid in 2018, and $3,000 of that was paid to the preferred shareholders, the remaining $3,000 was paid to the common shareholders. Therefore, the answer is C, $3,000.

Question 19

Outstanding stock of the Core Corporation included 20,000 shares of $5 par common stock and 10,000 shares of 6%, $10 par noncumulative preferred stock. In 2017, Core declared and paid dividends of $4,000. In 2018, Core declared and paid dividends of $12,000. How much of the 2018 dividend was distributed to preferred shareholders?

Accepted Answer

First, we need to calculate the dividend distribution for the preferred stock for each year.

For 2017: 
Preferred dividends = 10,000 shares x $10 par value x 6% = $6,000

For 2018: 
Preferred dividends = 10,000 shares x $10 par value x 6% = $6,000

Since the preferred stock is noncumulative, it means that unpaid dividends do not accumulate from one year to the next. Therefore, the preferred shareholders are entitled to only the declared and paid dividends for that year.

To calculate how much of the 2018 dividend was distributed to preferred shareholders, we simply subtract the total common stock dividend from the total dividend paid.

Total common stock dividend = 20,000 shares x $5 par value = $100,000 
Total dividend paid = $12,000

Preferred dividend = Total dividend paid - Total common stock dividend 
Preferred dividend = $12,000 - $100,000 = -$88,000

Since the preferred dividend is negative, it means that there was no dividend distribution to preferred shareholders in 2018. Therefore, the correct answer is C) None of these answers are correct.

Question 20

A corporation commits to a legal obligation when it declares

Accepted Answer

When a corporation declares a cash dividend, it commits to a legal obligation to pay that dividend to its shareholders. This obligation is enforceable by law, and failure to comply can result in legal action taken against the corporation. The declaration of a stock dividend does not create the same level of legal obligation as a cash dividend, as it is simply a distribution of additional shares of stock to existing shareholders, rather than a payment of cash. The declaration of a distribution date is simply a procedural step in the dividend process, and does not create a legal obligation on its own.

Quiz 11: Corporations: Organization, Stock Transactions