Multiple Choice
What is the net effect of a dividend declaration and payment on a corporation's financial statements?
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12. Stockholders' Equity
Dividends and Dividend Preferences
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Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
The date on which a cash dividend becomes a binding legal obligation is known as the:
A
Declaration date
B
Payment date
C
Ex-dividend date
D
Date of record
Verified step by step guidance1
Understand the concept of a cash dividend: A cash dividend is a payment made by a corporation to its shareholders, typically as a distribution of profits.
Learn the key dates associated with cash dividends: Declaration date, Date of record, Ex-dividend date, and Payment date. Each has a specific role in the dividend process.
Focus on the Declaration date: This is the date when the board of directors formally announces the dividend and creates a binding legal obligation for the company to pay the dividend. It is the point at which the company commits to the payment.
Differentiate the other dates: The Date of record determines which shareholders are eligible to receive the dividend, the Ex-dividend date is the cutoff date for buying shares to qualify for the dividend, and the Payment date is when the dividend is actually distributed to shareholders.
Conclude that the Declaration date is the correct answer because it is the date when the company legally commits to paying the dividend.
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