Dividend Policy MCQs

On December 1, Noble Inc.â€™s Board of Directors declared a property dividend, payable in stock held in the Multon Company. The dividend was paya...

$100,000
$150,000
$160,000
$175,000

Garland Corporation, a public company, has declared a property dividend of one share of its investment in Marlowe, Inc., for every 10 shares of its co...

A loss of $25 per share to be distributed.
A gain of $25 per share to be distributed.
No gain or loss.
An appropriate gain or loss based on the market value on the date of distribution.

Grand Corporation has 10,000,000 shares of $10 par-value stock authorized, of which 2,000,000 shares are issued and outstanding. The Board of Director...

$5
$10
$15
$30

Fox Company has 1,000,000 shares of common stock authorized, of which 100,000 shares are held as treasury shares; the remainder are held by the compan...

$90,000
$100,000
$540,000
$600,000

Bertram Company had a balance of $100,000 in retained earnings at the beginning of the year and of $125,000 at the end of the year. Net income for thi...

$20,000
$15,000
$12,000
$5,000

How would a stock split affect the par value of the stock and the company’s shareholders’ equity? Par Value... Shareholders’ Equity

Decrease Increase
Decrease No change
Increase Decrease
Increase No change

An undistributed stock dividend declared by the Board of Directors should be reported as a(n)

Current liability.
Long-term liability.
Footnote to the financial statements.
Item in the shareholders’ equity section.

Which one of the following statements regarding dividends is correct?

A stock dividend of 15% of the outstanding common shares results in a debit to retained earnings at the par value of the stock distributed.
At the declaration date of a 30% stock dividend, the carrying value of retained earnings will be reduced by the fair market value of the stock distributed.
The declaration of a cash dividend will have no effect on book value per share.
The declaration and payment of a 10% stock dividend will result in a reduction of retained earnings at the fair market value of the stock.

Which one of the following transactions does not affect the balance of retained earnings?

Declaration of a stock dividend.
A quasi-reorganization.
Declaration of a stock split.
Declaration of a property dividend.

Underhall, Inc.’s common stock is currently selling for $108 per share. Underhall is planning a new stock issue in the near future and would like to...

It will not decrease shareholders’ equity.
It will not impair the company’s ability to pay dividends in the future.
The impact on earnings per share will not be as great.
The par value per share will remain unchanged.

When preparing the statement of cash flows, companies are required to report separately as operating cash flows all of the following except

Interest received on investments in bonds.
Interest paid on the companyâ€™s bonds.
Cash collected from customers.
Cash dividends paid on the companyâ€™s stock.

Green Corp. owns 30% of the outstanding common stock and 100% of the outstanding noncumulative nonvoting preferred stock of Axel Corp. In Year 1, Axe...

$0
$30,000
$60,000
$90,000

On July 1, Year 1, Denver Corp. purchased 3,000 shares of Eagle Co.’s 10,000 outstanding shares of common stock for $20 per share but did not elect...

$36,000
$18,000
$12,000
$6,000

In practice, dividends

Usually exhibit greater stability than earnings.
Fluctuate more widely than earnings.
Tend to be a lower percentage of earnings for mature firms.
Are usually changed every year to reflect earnings changes.

Residco, Inc., expects net income of $800,000 for the next fiscal year. Its targeted and current capital structure is 40% debt and 60% common equity. ...

90.0%
66.7%
40.0%
10.0%

A firm’s dividend policy may treat dividends either as the residual part of a financing decision or as an active policy strategy. Treating divide...

Earnings should be retained and reinvested as long as profitable projects are available.
Dividends are important to shareholders, and any earnings left over after paying dividends should be invested in high-return assets.
Dividend payments should be consistent.
Dividends are relevant to a financing decision.

A firm’s dividend policy may treat dividends either as the residual part of a financing decision or as an active policy strategy. Treating dividend...

Dividends provide information to the market.
The firm should pay dividends only after investing in all investment opportunities having an expected return greater than the cost of capital.
Dividends are irrelevant.
Dividends are costly, and the firm should retain earnings and issue stock dividends.

A stock dividend

Increases the debt-to-equity ratio of a firm.
Decreases future earnings per share.
Decreases the size of the firm.
Increases stockholders’ wealth.

A 10% stock dividend most likely

Increases the size of the firm.
Increases shareholders’ wealth.
Decreases future earnings per share.
Decreases net income.

Brady Corporation has 6,000 shares of 5% cumulative, $100 par value preferred stock outstanding and 200,000 shares of common stock outstanding. Brady�...

$350,000
$380,000
$206,000
$410,000

When a company desires to increase the market value per share of common stock, the company will implement

The sale of treasury stock.
A reverse stock split.
The sale of preferred stock.
A stock split.

Arch, Inc., has 200,000 shares of common stock outstanding. Net income for the recently ended fiscal year was $500,000, and the stock has a price- ear...

$250
$1,333
$2,000
$3,000

On August 15, National Corporation announced a 1-for-10 reverse split, the event to occur on September 6, subject to shareholder approval. The stock�...

$13.75
$10.00
$2.75
$1.38

XYZ Corp. has 1,000 shares outstanding and retained earnings of $25,000. Theoretically, what would you expect to happen to the price of XYZ stock, cur...

Price should increase to $60 per share.
Price should decrease to $40 per share.
Price should decrease to $41.67 per share.
Nothing; price should remain at $50.

If a company uses the residual dividend policy, it will pay

A fixed cash dividend each quarter and use the residual as retained earnings.
A fixed stock dividend each quarter and retain all earnings as a residual.
All earnings as dividends each year.
Dividends only if earnings exceed the amount needed to support an optimal capital budget.

Stock dividends and stock splits differ in that

Stock splits involve a bookkeeping transfer from retained earnings to the capital stock account.
Stock splits are paid in additional shares of common stock, whereas a stock dividend results in replacement of all outstanding shares with a new issue of shares.
In a stock split, a larger number of new shares replaces the outstanding shares.
A stock dividend results in a decline in the par value per share.

If the capital gains were taxed at a lower rate than regular dividend income, then the the dividend payout percentage of a company, the , everything ...

Higher Higher its stock price would be
Higher Lower its book value of equity would be
Lower Lower its cost of equity would be
Lower Lower its stock price would be

On December , Charles Company’s board of directors declared a cash dividend of $1.00 per share on the 50,000 shares of common stock outstanding. The...

Make no accounting entry.
Debit retained earnings for $50,000.
Debit retained earnings for $55,000.
Debit retained earnings for $50,000 and paid-in capital for $5,000.

A company following a residual dividend payout policy will pay higher dividends when, everything else equal, it has

Less-attractive investment opportunities.
Lower earnings available for reinvestment.
A lower targeted debt-to-equity ratio.
A lower opportunity cost of retained earnings.

The date when the right to a dividend expires is called the

Declaration date.
Ex-dividend date.
Holder-of-record date.
Payment date.

The policy decision that by itself is least likely to affect the value of the firm is the

Investment in a project with a large net present value.
Sale of a risky division that will now increase the credit rating of the entire company.
Distribution of stock dividends to shareholders.
Use of a more highly leveraged capital structure that resulted in a lower cost of capital.

Which of the following types of dividends do not reduce equity in the corporation?

Cash dividends.
Property dividends.
Liquidating dividends.
Stock dividends and split-ups in the form of a dividend.

A company has 1,000 shares of $10 par value common stock and $5,000 of retained earnings. Two proposals are under consideration. The first is a stock ...

Increase More
Increase Less
Decrease More
Decrease Less

A company has 1,000 shares of $10 par value common stock and $5,000 of retained earnings. Two proposals are under consideration. The first is a stock ...

Split-up effected in the form of a dividend Increase
Stock split Increase
Split-up effected in the form of a dividend Decrease
Stock split Decrease

A company declares and pays both a $200,000 cash dividend and a 10% stock dividend. The effect of the dividend is to . List A List B

Cash Increase retained earnings
Cash Decrease retained earnings and increase equity
Stock Decrease retained earnings
Stock Decrease retained earnings and decrease equity

The purchase of treasury stock with a firm’s surplus cash

Increases a firm’s assets.
Increases a firm’s financial leverage.
Increases a firm’s interest coverage ratio.
Dilutes a firm’s earnings per share.

Jensen Corporation’s board of directors met on June 3 and declared a regular quarterly cash dividend of $.40 per share for a total value of $200,000...

Unchanged by the dividend declaration and decreased by the dividend payment.
Decreased by the dividend declaration and increased by the dividend payment.
Unchanged by either the dividend declaration or the dividend payment.
Decreased by the dividend declaration and unchanged by the dividend payment.

Jensen Corporation’s board of directors met on June 3 and declared a regular quarterly cash dividend of $.40 per share for a total value of $200,000...

Unchanged by the dividend declaration and increased by the dividend distribution.
Unchanged by the dividend declaration and decreased by the dividend distribution.
Increased by the dividend declaration and unchanged by the dividend distribution.
Unchanged by either the dividend declaration or the dividend distribution.

Excerpts from the statement of financial position for Landau Corporation as of September 30 of the current year are presented as follows. Cash $ 950,...

Decreased by the dividend declaration and increased by the dividend distribution.
Unchanged by the dividend declaration and increased by the dividend distribution.
Increased by the dividend declaration and unchanged by the dividend distribution.
Unchanged by either the dividend declaration or the dividend distribution.

Which one of the following best describes the record date as it pertains to common stock?

Four business days prior to the payment of a dividend.
The 52-week high for a stock published in The Wall Street Journal.
The date that is chosen to determine the ownership of shares.
The date on which a prospectus is declared effective by the Securities and Exchange Commission.

James Hemming, the chief financial officer of a midwestern machine parts manufacturer, is considering splitting the company’s stock, which is curren...

Exactly $40, regardless of dividend policy.
Greater than $40, if the dividend is changed to $0.45 per new share.
Greater than $40, if the dividend is changed to $0.55 per new share.
Less than $40, regardless of dividend policy.

The residual theory of dividends argues that dividends

Are necessary to maintain the market price of the common stock.
Are irrelevant.
Can be forgone unless there is an excess demand for cash dividends.
Can be paid if there is income remaining after funding all attractive investment opportunities.

When determining the amount of dividends to be declared, the most important factor to consider is the

Expectations of the shareholders.
Future planned uses of retained earnings.
Impact of inflation on replacement costs.
Future planned uses of cash.

Kalamazoo, Inc., has issued 25,000 shares of its authorized 50,000 shares of common stock. There are 5,000 shares of common stock that have been repur...

$12,000
$15,000
$21,000
$30,000

Plack Co. purchased 10,000 shares (2% ownership) of Ty Corp. on February 14, year 1. Plack received a stock dividend of 2,000 shares on April 30, ye...

$20,000
$24,000
$90,000
$94,000

At December 31, year 2 and year 3, Apex Co. had 3,000 shares of $100 par, 5% cumulative preferred stock outstanding. No dividends were in arrears as...

Accrued liability of $15,000.
Disclosure of $15,000.
Accrued liability of $20,000.
Disclosure of $20,000.

East Corp., a calendar-year company, had sufficient retained earnings in year 1 as a basis for dividends, but was temporarily short of cash. East de...

Debit retained earnings for $110,000 on April 1, year 1.
Debit retained earnings for $110,000 on March 31, year 2.
Debit retained earnings for $100,000 on April 1, year 1, and debit interest expense for $10,000 on March 31, year 2.
Debit retained earnings for $100,000 on April 1, year 1, and debit interest expense for $7,500 on December 31, year 1.

On January 2, year 2, Lake Mining Co.’s board of directors declared a cash dividend of $400,000 to stockholders of record on January 18, year 2, p...

$0
$100,000
$150,000
$300,000

On June 27, year 1, Brite Co. distributed to its common stockholders 100,000 outstanding common shares of its investment in Quik, Inc., an unrelated...

$250,000
$200,000
$ 50,000
$0

On December 1, year 1, Nilo Corp. declared a property dividend of marketable securities to be distributed on December 31, year 1, to stockholders of...

$0.
$18,000 increase.
$60,000 decrease.
$78,000 decrease.

Ole Corp. declared and paid a liquidating dividend of $100,000. This distribution resulted in a decrease in Ole’s Paid-in capital Retained earning...

No No
Yes Yes
No Yes
Yes No

Instead of the usual cash dividend, Evie Corp. declared and distributed a property dividend from its overstocked merchandise. The excess of the merc...

Ignored.
Reported as a separately disclosed reduction of retained earnings.
Reported as an extraordinary loss, net of income taxes.
Reported as a reduction in income before extraordinary items.