30) Corporations may not retire preferred stock in order to avoid paying the preferred dividends.
31) If a company retires preferred stock, ________.
A) total stockholders’ equity will decrease
B) total stockholders’ equity will increase
C) the company can record a gain or loss on retirement of stock
D) the number of outstanding shares will increase
1) A profitable corporation may make distributions to stockholders in the form of bonuses.
2) Dividends can be paid in the form of cash, stock, or other property.
3) Which of the following is true of dividends?
A) Dividends are a distribution of cash, stock, or other property to stockholders.
B) Dividends increase assets and decrease total stockholders’ equity of a corporation.
C) Dividend payments decrease paid-in capital.
D) Dividend payments increase stockholders’ equity.
4) Cash dividends cause a decrease in both assets and stockholders’ equity of the corporation.
5) The declaration of a cash dividend does not create an obligation for the corporation.
6) Declaring and paying dividends causes an increase in both assets and stockholders’ equity of the
corporation.
7) Legal capital refers to the portion of stockholders’ equity that cannot be used for dividends.
8) If preferred stock is noncumulative, the company is required to pay dividends that were passed in
previous years.
9) The declaration date is the date the corporation prepares a journal entry to record that stockholders
will receive dividend checks.
10) No journal entry is made on the dividend declaration date.
11) When a company has issued both preferred and common stock, the common stockholders receive
their dividends first.
12) A corporation will never pay dividends on treasury stock.
13) Noncumulative preferred stock is in arrears if the dividend has not been paid for the year.
14) A corporation declares a dividend of $0.50 per share on 18,000 shares of common stock. Which of the
following is included in the entry to record the declaration?
A) Cash Dividends is debited for $9000.
B) Paid-In Capital in Excess of Par—Common is credited for $9000.
C) Cash Dividends is credited for $9000.
D) Dividends Payable—Common is debited for $9000.
15) On the ________, cash dividends become a liability of a corporation.
A) declaration date
B) date of record
C) last day of the fiscal year
D) payment date
16) The entry to record the payment of a previously declared dividend of $0.25 per share on 18,500 shares
of common stock includes a ________.
A) debit to Cash Dividends for $4625
B) debit to Cash $4625
C) credit to Cash Dividends for $4625
D) debit to Dividends Payable for $4625
17) When a previously declared dividend is paid, which of the following occurs?
A) Assets increase.
B) Stockholders’ equity increases.
C) Liabilities decrease.
D) Assets remain unchanged.
18) Which of the following occurs when a cash dividend is declared?
A) Liabilities remain unchanged.
B) Stockholders’ equity decreases.
C) Liabilities decrease.
D) Assets increase.
19) Dividends in arrears are ________.
A) a liability on the balance sheet
B) passed dividends on noncumulative preferred stock
C) passed dividends on cumulative preferred stock
D) passed dividends on common stock
20) Atlantis Corporation has 12,000 shares of 14%, $78 par noncumulative preferred stock outstanding
and 29,000 shares of no-par common stock outstanding. At the end of the current year, the corporation
declares a dividend of $188,000. How is the dividend allocated between preferred and common
stockholders?
A) The dividend is allocated $6023 to preferred stockholders and $132,976 to common stockholders.
B) The dividend is allocated $131,040 to preferred stockholders and $56,960 to common stockholders.
C) The dividend is allocated $55,024 to preferred stockholders and $132,976 to common stockholders.
D) The dividend is allocated $316,680 to preferred stockholders and $128,680 to common stockholders.
21) A corporation has 14,000 shares of 13%, $104 par noncumulative preferred stock outstanding and
22,000 shares of no-par common stock outstanding. At the end of the current year, the corporation
declares a dividend of $220,000. What is the dividend per share for preferred stock and for common
stock? (Round your answer to the nearest cent.)
A) The dividend per share is $13.52 to preferred stock and $1.40 to common stock.
B) The dividend per share is $8.26 to preferred stock and $1.40 to common stock.
C) The dividend per share is $13.52 to preferred stock and $13.52 to common stock.
D) The dividend per share is $13.52 to preferred stock and $27.50 to common stock.
22) On November 1, 2018, Uno, Inc. declared a dividend of $4.50 per share. Uno, Inc. has 23,000 shares of
common stock outstanding and no preferred stock. Which of the following is the journal entry needed to
record the declaration of the dividend?
A) Debit Dividends Payable—Common $103,500, and credit Retained Earnings $103,500.
B) Debit Cash Dividends $103,500, and credit Cash $103,500.
C) Debit Cash Dividends $103,500, and credit Dividends Payable—Common $103,500.
D) Debit Cash $103,500, and credit Dividends Payable—Common $103,500.
23) On November 1, 2019, Juno, Inc. declared a dividend of $3.00 per share on common stock. Juno, Inc.
has 10,000 shares of common stock outstanding and 20,000 shares of preferred stock. The date of record is
November 15, and the payment date is November 30, 2019. Regarding the date of record, which of the
following statements is true?
A) No journal entry is made on the date of record.
B) The liability must be recorded on the date of record.
C) Cash is disbursed to shareholders on the date of record.
D) The company transfers cash to a brokerage firm on the date of record.
24) On November 1, 2018, Nada, Inc. declared a dividend of $5.00 per share on common stock. Nada, Inc.
has 20,000 shares of common stock outstanding and no preferred stock. The date of record is November
15, and the payment date is November 30, 2018. Which of the following is the journal entry needed on
November 30, 2018?
A) Debit Cash Dividends $100,000, and credit Dividends Payable—Common $100,000.
B) Debit Dividends Payable—Common $100,000, and credit Cash $100,000.
C) Debit Cash $100,000, and credit Dividends Payable—Common $100,000.
D) Debit Cash Dividends $100,000, and credit Cash $100,000.
25) Valley, Inc. has 9000 shares of preferred stock outstanding. The preferred stock has a $90 par value, a
14% dividend rate, and is noncumulative. If Valley has sufficient funds to pay dividends, what is the total
amount of dividends that will be paid out to preferred stockholders?
A) $32,143
B) $113,400
C) $57,857
D) $8100
26) On the date of record for a dividend, the company ________.
A) issues new shares of stock on that date
B) disburses dividend payments to stockholders on that date
C) records the dividend payable amount on that date
D) determines who owns the shares of stock on that date
27) Organic Produce, Inc. has 49,000 shares of common stock outstanding and 6000 shares of preferred
stock outstanding. The common stock is $0.08 par value; the preferred stock is 4% noncumulative with a
$100.00 par value. On October 15, 2019, the company declares a total dividend payment of $56,000. How
much dividend will be paid to the preferred stockholders?
A) $56,000
B) $48,000
C) $24,000
D) $3920
28) Healthy Farmer, Inc. has 46,000 shares of common stock outstanding and 3000 shares of preferred
stock outstanding. The common stock is $0.03 par value; the preferred stock is 7% noncumulative with a
$100.00 par value. On October 15, 2019, the company declares a total dividend payment of $43,000. What
is the total amount of dividends that will be paid to the common stockholders?
A) $43,000
B) $22,000
C) $1380
D) $9000
29) Hometown Grocery, Inc. has 41,000 shares of common stock outstanding and 5000 shares of preferred
stock outstanding. The common stock is $6.00 par value; the preferred stock is 4% noncumulative with a
$100.00 par value. On October 15, 2018, the company declares a total dividend payment of $55,000. What
is the amount of dividend that will be paid for each share of common stock? (Round your answer to the
nearest cent.)
A) $0.85
B) $24.60
C) $2460.00
D) $0.75
30) Which of the following is the correct description of dividends in arrears?
A) the cumulative amount of dividends that were not paid in previous years
B) the cumulative amount of dividends that were paid in previous years
C) the amount of dividends that were paid after the payment date
D) the amount of dividends that will be paid in the next year
31) Electric, Inc. was incorporated on January 1, 2016. Electric issued 4000 shares of common stock and
1200 shares of preferred stock on that date. The preferred stock is cumulative, $100 par, with an 12%
dividend rate. Electric has not paid any dividends yet. In 2019, Electric had its first profitable year, and on
November 1, 2019, Electric declared a total dividend of $63,000. What is the total amount that will be paid
to preferred shareholders?
A) $14,400
B) $57,600
C) $13,200
D) $63,000
32) Colorful, Inc. was incorporated on January 1, 2016. Colorful issued 15,000 shares of common stock
and 800 shares of preferred stock on that date. The preferred stock is cumulative, $100 par, with a 12%
dividend rate. Colorful has not paid any dividends yet. In 2019, Colorful had its first profitable year, and
on November 1, 2019, Colorful declared a total dividend of $44,000. What is the total amount that will be
paid to common stockholders?
A) $9600
B) $38,400
C) $5600
D) $44,000