Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

12. Stockholders' Equity

Dividends and Dividend Preferences

Financial Accounting

12. Stockholders' Equity

Dividends and Dividend Preferences

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Multiple Choice

How should cash dividends be reported on the statement of shareholders' equity?

As an addition to common stock

As a deduction from retained earnings

As a liability under current liabilities

As an increase in additional paid-in capital

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Verified step by step guidance

Understand the concept of cash dividends: Cash dividends represent a distribution of a company's earnings to its shareholders, reducing the amount of retained earnings available for reinvestment in the business.

Review the structure of the statement of shareholders' equity: This statement tracks changes in equity accounts, including common stock, additional paid-in capital, retained earnings, and other equity components.

Identify the impact of cash dividends: Cash dividends reduce retained earnings because they represent a payout of profits to shareholders rather than being retained for future use.

Determine the correct reporting method: Cash dividends are reported as a deduction from retained earnings on the statement of shareholders' equity, reflecting the decrease in equity due to the distribution.

Exclude incorrect options: Cash dividends are not added to common stock, reported as a liability under current liabilities, or included as an increase in additional paid-in capital, as these do not align with the nature of dividends.