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 best describes the dividends paid to common and preferred stockholders?

Preferred stockholders receive their dividends before common stockholders.

Common stockholders receive their dividends before preferred stockholders.

Only common stockholders are entitled to receive dividends.

Dividends are always paid equally to both common and preferred stockholders.

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Verified step by step guidance

Understand the concept of dividends: Dividends are payments made by a corporation to its shareholders, typically as a distribution of profits. They can be paid to both common and preferred stockholders, but the priority and amount may differ.

Learn the distinction between common and preferred stockholders: Preferred stockholders have a higher claim on dividends compared to common stockholders. This means they are entitled to receive dividends before common stockholders.

Recognize the rights of preferred stockholders: Preferred stockholders often receive a fixed dividend amount, which is specified in the terms of the preferred stock. This fixed dividend is paid before any dividends are distributed to common stockholders.

Understand the rights of common stockholders: Common stockholders receive dividends only after preferred stockholders have been paid. The amount of dividends for common stockholders is not fixed and depends on the company's profitability and dividend policy.

Evaluate the statements provided: Based on the above concepts, the correct statement is 'Preferred stockholders receive their dividends before common stockholders,' as it accurately reflects the priority of dividend payments.