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

Which of the following statements is true regarding both cash dividends and stock dividends?

Both decrease retained earnings of a corporation.

Both result in an outflow of cash from the company.

Both increase the total stockholders' equity.

Both require the issuance of new shares to shareholders.

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Verified step by step guidance

Understand the concept of cash dividends: Cash dividends are payments made by a corporation to its shareholders in the form of cash. These reduce retained earnings and result in an outflow of cash from the company.

Understand the concept of stock dividends: Stock dividends are distributions of additional shares to shareholders instead of cash. These also reduce retained earnings but do not result in an outflow of cash. Instead, they increase the number of shares outstanding.

Analyze the impact on retained earnings: Both cash dividends and stock dividends decrease retained earnings because they represent a distribution of the company's profits to shareholders.

Evaluate the impact on stockholders' equity: Cash dividends reduce stockholders' equity because they decrease retained earnings and involve an outflow of cash. Stock dividends do not change the total stockholders' equity; they simply reallocate amounts within equity (from retained earnings to common stock and additional paid-in capital).

Determine whether new shares are issued: Stock dividends require the issuance of new shares to shareholders, while cash dividends do not involve issuing new shares. This distinction is critical in understanding the differences between the two types of dividends.