Accounting Test 1 (Chapter 14: Part 3)

cash, property, scrip (a promissory note to pay cash), or stock.

4 forms of dividends

EPS

Earnings per share

Yes

Because of the similarities as the statements for partnerships, do corporations report income tax expense in a separate section of the corporation income statement, before net income?

retained earnings restrictions

Circumstances that make a portion of retained earnings currently unavailable for dividends.

in the financial press

dividends are generally reported quarterly as a dollar amount per share.

EPS

The net income earned by each share of outstanding common stock.

Yes it provides security for the stockholder

Does most preferred stocks have a preference on corporate assets if the corporation fails? If so, why?

Cumulative dividend

A feature of preferred stock entitling the stockholder to receive current-year and any unpaid prior-year dividends before common stockholders are paid dividends.

Retained earnings statement

A financial statement that shows the changes in retained earnings during the year.

cash dividend

A pro rata distribution of cash to stockholders.

stock dividend

A pro rata distribution to stockholders of the corporation's own stock.

Stockholders' equity statement

A statement that shows the changes in each stockholders' equity account and in total stockholders' equity during the year.

decrease in retained earnings and an increase in paid-in capital.

A stock dividend results in a_____

yes. For example, if the dividend rate on preferred stock is $5 per share, common shareholders cannot receive any dividends in the current year until preferred stockholders have received $5 per share.

Do preferred stockholders have the right to receive dividends before common stockholders?

1. Retained earnings. The legality of a cash dividend depends on the laws of the state in which the company is incorporated. 2. Adequate cash. The legality of a dividend and the ability to pay a dividend are two different things. 3. Declared dividends. Companies do not pay dividends unless its board of directors decides to do so, at which point the board "declares" the dividend

For a corporation to pay a cash dividend, it must have the following.

They change the composition of stockholders' equity transfer a portion of retained earnings to paid-in capital.

How do stock dividends affect stockholders' equity?

large stock dividend

If a company issues a ______ (greater than 20-25%), the price assigned to the dividend is the par or stated value.

same

Income statements for corporations are the _____ as the statements for proprietorships or partnerships except for one thing: the reporting of income taxes.

Legal restrictions. Many states require a corporation to restrict retained earnings for the cost of treasury stock purchased. The restriction keeps intact the corporation's legal capital that is being temporarily held as treasury stock. When the company sells the treasury stock, the restriction is lifted. 2.Contractual restrictions. Long-term debt contracts may restrict retained earnings as a condition for the loan. The restriction limits the use of corporate assets for payment of dividends. Thus, it increases the likelihood that the corporation will be able to meet required loan payments. 3.Voluntary restrictions. The board of directors may voluntarily create retained earnings restrictions for specific purposes. For example, the board may authorize a restriction for future plant expansion. By reducing the amount of retained earnings available for dividends, the company makes more cash available for the planned expansion.

Restrictions result from one or more of the following causes.

retained earnings

net income that a company retains in a business

stock split

The issuance of additional shares of stock to stockholders according to their percentage ownership. It is accompanied by a reduction in the par or stated value per share.

prior period adjustment

The correction of an error in previously issued financial statements

payment date

The date dividends are transferred to stockholders.

declaration date

The date the board of directors formally declares (authorizes) a dividend and announces it to stockholders.

Record Date

The date when ownership of outstanding shares is determined for dividend purposes.

False, "Not meeting your obligations on something like that is a major black mark on your record."

True or False The investment community looks favorably on companies that are unable to meet their dividend obligations.

True Dividends in arrears are not considered a liability.

True or False? No obligations exists until the board of directors formally declares that the corporation will pay a dividend.

it commits the corporation to a legal obligation

What's the purpose of a cash dividend?

retained earnings

When a company has a net loss (expenses exceed revenues), it also closes this amount to _____.

small stock dividend

if the company issues a ______ (less than 20-25% of the corporation's issued stock), the value assigned to the dividend is the fair value (market price) per share.

pro rata

if you own 10% of the common shares, you will receive 10% of the dividend

dividend

is a corporation's distribution of cash or stock to its stockholders on a pro rata (proportional to ownership)

1.To satisfy stockholders' dividend expectations without spending cash. 2.To increase the marketability of the corporation's stock. When the number of shares outstanding increases, the market price per share decreases. Decreasing the market price of the stock makes it easier for smaller investors to purchase the shares. 3.To emphasize that a company has permanently reinvested in the business a portion of stockholders' equity, which therefore is unavailable for cash dividends.

reasons corps issue stock dividends

(1) the declaration date, (2) the record date, and (3) the payment date.

what are the three dates that are important in connection with dividends: