Dividends and Dividend Preferences quiz #2 Flashcards
Dividends and Dividend Preferences quiz #2
You can tap to flip the card.
Control buttons has been changed to "navigation" mode.
1/31Skip to main content
If a company has 100,000 shares of common stock and $180,000 is allocated to common dividends, how much does each common share receive?
Each common share receives $1.80 ($180,000 ÷ 100,000). What is the main reason companies separate the declaration, record, and payment dates for dividends?
Separating the dates allows the company to identify eligible shareholders and manage the timing of liability recognition and payment. What is the impact on the accounting equation when a dividend is declared?
Equity decreases and liabilities increase, keeping the accounting equation balanced. What is the impact on the accounting equation when a dividend is paid?
Assets (cash) decrease and liabilities (dividends payable) decrease, keeping the accounting equation balanced. Why do companies need to be certain they can pay dividends before declaring them?
Declaring dividends creates a legal liability, so companies must ensure they have sufficient resources to pay them. What is the role of the board of directors in the dividend process?
The board of directors is responsible for declaring dividends and setting the declaration, record, and payment dates. How does the dividend process affect retained earnings?
Dividends reduce retained earnings, as they represent a distribution of profits to shareholders. What is the effect of dividends on a company's financial statements?
Dividends reduce retained earnings on the balance sheet and decrease cash when paid. What is the difference between preferred and common stock in terms of dividend rights?
Preferred stockholders have priority and receive a fixed dividend before common stockholders receive any dividends. What happens if a company does not declare a dividend?
If no dividend is declared, no liability is recorded and no payment is made to shareholders. How does the number of shares outstanding affect the per share dividend?
The more shares outstanding, the lower the per share dividend for a given total dividend amount. What is the accounting treatment for dividends declared but not yet paid?
Dividends declared but not yet paid are recorded as a liability (dividends payable) until the payment date. Why is it important to know the par value of preferred stock when calculating dividends?
The par value is used to calculate the fixed dividend amount for preferred shareholders based on the dividend rate. What is the effect on common shareholders if the company only declares enough dividends to cover the preferred dividend?
Common shareholders receive no dividends if the declared amount only covers the preferred dividend. How does the dividend rate on preferred stock influence the total dividend paid to preferred shareholders?
A higher dividend rate increases the total dividend paid to preferred shareholders, as it is a percentage of par value. What is the main purpose of paying dividends to shareholders?
Dividends provide a return on investment to shareholders by distributing a portion of the company's profits. How does the payment of dividends affect a company's liquidity?
Paying dividends reduces a company's cash balance, affecting its liquidity. What is the relationship between dividends and retained earnings?
Dividends are paid out of retained earnings, reducing the amount of profits retained in the company. What is the significance of the payment date for shareholders?
The payment date is when shareholders actually receive the dividend payment. How does the declaration of a dividend affect the company's balance sheet?
The declaration increases liabilities (dividends payable) and decreases equity (retained earnings). How does the payment of a dividend affect the company's balance sheet?
The payment decreases assets (cash) and decreases liabilities (dividends payable). What is the effect of dividends on the statement of retained earnings?
Dividends are subtracted from net income to determine the ending retained earnings. Why might a company choose not to pay dividends even if it is profitable?
A company might retain profits for reinvestment, growth, or to maintain liquidity rather than pay dividends. What is the impact of dividend payments on shareholder wealth?
Dividend payments provide direct income to shareholders, increasing their wealth. How are dividends typically paid to shareholders?
Dividends are typically paid in cash, but can also be paid in additional shares (stock dividends). What is the main difference between the declaration date and the payment date for dividends?
The declaration date is when the liability is recorded, while the payment date is when the liability is settled and cash is paid. How does the dividend process ensure fairness among shareholders?
The record date ensures that only shareholders who own the stock on that date receive the dividend, regardless of subsequent trades. What is the effect of a dividend declaration on the dividends account?
The dividends account is debited, reducing retained earnings and equity. How does the payment of dividends affect the dividends payable account?
The dividends payable account is debited (reduced) when the dividend is paid. What is the role of the dividends account in the accounting cycle?
The dividends account temporarily records declared dividends and is closed to retained earnings at the end of the period. Why is it important for companies to communicate dividend dates to shareholders?
Communicating dividend dates ensures transparency and allows shareholders to know when they will receive dividends.
02:47
