Question 1

Denson, Inc. has 10,000 shares of 7%, $100 par value, non-cumulative preferred stock and 40,000 shares of $1 par value common stock outstanding at December 31, 2014. There were no dividends declared in 2013. The board of directors declares and pays a $120,000 dividend in 2014. What is the amount of dividends received by the common stockholders in 2014?
A) $0.
B) $70,000.
C) $120,000.
D) $50,000.

Accepted Answer

The preferred stockholders receive their 7% dividend first, which is $70,000 (10,000 shares x $100 par value x 7%). Since the preferred stock is non-cumulative, they do not receive any dividends for 2013. The remaining $50,000 ($120,000 total dividend - $70,000 preferred dividend) is distributed to the common stockholders.

Question 2

Which of the following statements is not true about a 2-for-1 split?
A) Par value per share is reduced to half of what it was before the split.
B) Total contributed capital increases.
C) The market price probably will decrease.
D) A stockholder with ten shares before the split owns twenty shares after the split.

Accepted Answer

The answer of Which of the following statements is not...

Question 3

The board of directors must assign a per share value to a stock dividend declared that is
A) greater than the par or stated value.
B) less than the par or stated value.
C) equal to the par or stated value.
D) at least equal to the par or stated value.

Accepted Answer

When a board of directors assigns a per share value to a stock dividend, it must be at least equal to the par or stated value. This ensures that the stock's value is not diluted and maintains the integrity of the existing shares' value.

Question 4

Ace Inc. has 10,000 shares of 5%, $100 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2014. What is the annual dividend on the preferred stock?
A) $50 per share
B) $50,000 in total
C) $5,000 in total
D) $0.50 per share

Accepted Answer

The annual dividend on the preferred stock is calculated as 5% of the par value ($100) per share. Therefore, the dividend per share is $5 (5% of $100), and with 10,000 shares, the total annual dividend is $50,000.

Question 5

Watson, Inc. has 10,000 shares of 6%, $100 par value, cumulative preferred stock and 20,000 shares of $1 par value common stock outstanding at December 31, 2014. There were no dividends declared in 2012. The board of directors declares and pays a $100,000 dividend in 2013 and in 2014. What is the amount of dividends received by the common stockholders in 2014?
A) $20,000.
B) $60,000.
C) $100,000.
D) $0.

Accepted Answer

The preferred stock is cumulative, which means that any dividends that are not paid in one year must be paid in a later year before any dividends can be paid to the common stockholders. In this case, the preferred stock is entitled to a dividend of $6 per share, or a total of $60,000. Since no dividends were declared in 2012, the preferred stockholders are entitled to $120,000 in dividends ($60,000 for 2012 and $60,000 for 2013). The remaining $40,000 of the $100,000 dividend declared in 2014 is available for distribution to the common stockholders.

Question 6

A stockholder who receives a stock dividend would
A) expect the market price per share to increase.
B) own more shares of stock.
C) expect retained earnings to increase.
D) expect the par value of the stock to change.

Accepted Answer

When a stockholder receives a stock dividend, they will receive more shares of stock in proportion to their current holdings. Therefore, owning more shares of stock is the correct answer. The market price per share may or may not increase or decrease depending on the circumstances, but it is not a guaranteed outcome of receiving a stock dividend. Retained earnings may be affected by a stock dividend, but it is not a direct result of receiving a stock dividend. The par value of the stock may or may not change with a stock dividend, but it is not a significant factor in determining the impact on the stockholder.

Question 7

On the dividend record date
A) a dividend becomes a current obligation.
B) no entry is required.
C) an entry may be required if it is a stock dividend.
D) Dividends Payable is debited.

Accepted Answer

The answer of On the dividend record date
A) a dividend...

Question 8

When stock dividends are distributed,
A) Common Stock Dividends Distributable is decreased.
B) retained earnings is decreased.
C) Paid-in Capital in Excess of Par Value is debited if it is a small stock dividend.
D) no entry is necessary if it is a large stock dividend.

Accepted Answer

The answer of When stock dividends are distributed,
A) Common Stock...

Question 9

Which of the following is not a significant date with respect to dividends?
A) The declaration date.
B) The incorporation date.
C) The record date.
D) The payment date.

Accepted Answer

The incorporation date is the date on which a company is formed and has nothing to do with dividends. The declaration date, record date, and payment date are all important dates with respect to dividends. The declaration date is the date on which a company's board of directors announces the dividend to be paid out. The record date is the date on which shareholders must hold the stock in order to be eligible to receive the dividend. The payment date is the date on which the dividend is actually paid out to eligible shareholders.

Question 10

The per share amount normally assigned by the board of directors to a small stock dividend is
A) the market value of the stock on the date of declaration.
B) the average price paid by stockholders on outstanding shares.
C) the par or stated value of the stock.
D) zero.

Accepted Answer

The answer of The per share amount normally assigned by...

Question 11

Which of the following statements regarding the date of a cash dividend declaration is not accurate?
A) The dividend can be rescinded once it has been declared.
B) The corporation is committed to a legal, binding obligation.
C) The board of directors formally authorizes the cash dividend.
D) A liability account must be increased.

Accepted Answer

Once a cash dividend has been declared, it cannot be rescinded. The other statements are accurate regarding the date of a cash dividend declaration.

Question 12

Sizemore, Inc. has 10,000 shares of 5%, $100 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2014. If the board of directors declares a $30,000 dividend, the
A) preferred stockholders will receive 1/10th of what the common stockholders will receive.
B) preferred stockholders will receive the entire $30,000.
C) $30,000 will be held as restricted retained earnings and paid out at some future date.
D) preferred stockholders will receive $15,000 and the common stockholders will receive $15,000.

Accepted Answer

The preferred stockholders are entitled to a 5% dividend on their $100 par value shares, which amounts to $50,000 (10,000 shares x $100 x 5%). Since the dividend is cumulative and only $30,000 is declared, the entire amount goes to the preferred stockholders.

Question 13

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 14

A small stock dividend is defined as
A) less than 30% but greater than 25% of the corporation's issued stock.
B) between 50% and 100% of the corporation's issued stock.
C) more than 30% of the corporation's issued stock.
D) less than 20-25% of the corporation's issued stock.

Accepted Answer

A small stock dividend is typically defined as less than 20-25% of the corporation's issued stock. This is in contrast to a large stock dividend, which would be greater than 20-25% of the corporation's issued stock. Option A is incorrect as it suggests a range that includes both small and large stock dividends. Option B is incorrect as it suggests a range that is too high for a small stock dividend. Option C is incorrect as it suggests a range that is also too high for a small stock dividend.

Question 15

CAB Inc. has 1,000 shares of 6%, $100 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2014. What is the annual dividend on the preferred stock?
A) $60 per share.
B) $6,000 in total.
C) $600 in total.
D) $0.60 per share.

Accepted Answer

The annual dividend on the preferred stock is calculated as 6% of the $100 par value per share, which is $6 per share. With 1,000 shares, the total annual dividend is $6,000.

Question 16

Corporations generally issue stock dividends in order to
A) increase the market price per share.
B) exceed stockholders' dividend expectations.
C) increase the marketability of the stock.
D) decrease the amount of capital in the corporation.

Accepted Answer

Stock dividends are often issued to increase the marketability of the stock by increasing the number of shares available, which can make the stock more accessible to a wider range of investors due to a lower price per share. This does not directly aim to increase the market price per share, exceed dividend expectations, or decrease the corporation's capital.

Question 17

Brewer Inc. has 5,000 shares of 8%, $50 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2014, and December 31, 2013. The board of directors declared and paid a $15,000 dividend in 2013. In 2014, $60,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2014?
A) $35,000.
B) $30,000.
C) $25,000.
D) $20,000.

Accepted Answer

The answer of Brewer Inc. has 5,000 shares of 8%,...

Question 18

Berman Inc. has 6,000 shares of 8%, $50 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2013, and December 31, 2014. The board of directors declared and paid an $18,000 dividend in 2013. In 2014, $72,000 of dividends are declared and paid. What are the dividends received by the common stockholders in 2014?
A) $42,000.
B) $36,000.
C) $30,000.
D) $24,000.

Accepted Answer

The preferred stock is cumulative, which means that any dividends that are not paid in one year must be paid in a subsequent year before any dividends can be paid to the common stockholders. In 2013, the preferred stockholders are entitled to $48,000 of dividends (6,000 shares x $8 per share). Since only $18,000 of dividends were paid in 2013, the preferred stockholders are entitled to $30,000 of dividends in 2014. This leaves $42,000 of dividends available for the common stockholders in 2014.

Question 19

Which of the following statements about dividends is not accurate?
A) Dividends are generally reported quarterly as a dollar amount per share.
B) Low dividends may mean high stock returns.
C) The board of directors is obligated to declare dividends.
D) Payment of dividends from legal capital is illegal in many states.

Accepted Answer

The board of directors is not obligated to declare dividends. They have the discretion to decide whether or not to pay dividends based on the company's financial situation and other factors.

Question 20

The per share amount normally assigned by the board of directors to a large stock dividend is
A) the market value of the stock on the date of declaration.
B) the average price paid by stockholders on outstanding shares.
C) the par or stated value of the stock.
D) zero.

Accepted Answer

The per share amount assigned to a large stock dividend is typically the par or stated value of the stock. This is because the purpose of a stock dividend is to distribute additional shares of the company's stock to existing shareholders, without increasing the total value of the company. Therefore, the per share amount is not based on market value or the average price paid by stockholders. It is also not zero, as there is a value associated with each share of stock.

Quiz 11: Reporting and Analyzing Stockholders Equity

Which of the following statements is not true about a 2-for-1 split?

The board of directors must assign a per share value to a stock dividend declared that is

Ace Inc. has 10,000 shares of 5%, $100 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2014. What is the annual dividend on the preferred stock?

A stockholder who receives a stock dividend would

On the dividend record date

When stock dividends are distributed,

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

The per share amount normally assigned by the board of directors to a small stock dividend is

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

Sizemore, Inc. has 10,000 shares of 5%, $100 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2014. If the board of directors declares a $30,000 dividend, the

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

A small stock dividend is defined as

CAB Inc. has 1,000 shares of 6%, $100 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2014. What is the annual dividend on the preferred stock?

Corporations generally issue stock dividends in order to

Which of the following statements about dividends is not accurate?

The per share amount normally assigned by the board of directors to a large stock dividend is