Multiple Choice
Unpaid dividends on cumulative preferred stock are referred to as dividends in:
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12. Stockholders' Equity
Dividends and Dividend Preferences
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The date on which a cash dividend becomes a liability to a corporation is the:
A
date of declaration
B
date of record
C
ex-dividend date
D
date of payment
Verified step by step guidance1
Understand the concept of cash dividends: 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: These include the date of declaration, date of record, ex-dividend date, and date of payment.
Define the date of declaration: This is the date when the board of directors formally announces the dividend and commits to paying it. On this date, the dividend becomes a liability to the corporation because it is now obligated to pay the shareholders.
Clarify the other dates for comparison: The date of record determines which shareholders are eligible to receive the dividend, the ex-dividend date is the cutoff for buying shares to receive the dividend, and the date of payment is when the dividend is actually distributed.
Conclude that the date on which a cash dividend becomes a liability to the corporation is the date of declaration, as this is when the obligation to pay is established.
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