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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Which of the following should be considered when a company decides to declare a cash dividend on common stock?

  1. the retained earnings balance only
  2. the cash available and the retained earnings balance
  3. the amount of authorized shares of common stock
  4. the book value of the company’s stock

To determine

Concept introduction:

Cash dividend:

The Cash dividend is the amount of dividend paid to shareholders in cash. The Cash dividend is declared first and paid later. There are two journal entries made, one at the time of declaration of dividend and another at the time of payment.

To choose:

The correct statement about declaration of a cash dividend on common stock.

Explanation

Explanation for correct answer:

The Company considers the cash available and the retained earnings balance at the time of declaration of a cash dividend on common stock. Hence the correct option is b.

Explanation for incorrect answers:

a. The Company considers the cash available and the retained earnings balance at the time of declaration of a cash dividend on common stock...

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