Question

1. Distinguish among: cash dividends, property dividends, liquidating dividends, and stock dividends.

2. In the absence of restrictive provisions, what are the basic rights of stockholders of a corporation?

Answer 1

Solution #1:

Cash dividend - It is the most common of the dividend types used. On the date of declaration, the board of directors decides to pay a certain amount of dividend in cash to those investors holding the company's stock on a specific date.

Stock dividend - Dividend payment made in the form of additional shares rather than payout of cash. Companies may resolve to distribute stock dividend to shareholders of record if availability of liquid cash is in short supply.

Property dividend - It is the non-monetary dividend to investors, rather than making a cash or stock payment. This distribution is recorded at the fair market value of the assets distributed

Liquidating dividend-When the board of directors resolves to return the capital contributed by shareholders as a dividend, it is called a liquidating dividend and may be a precursor to shutting down the business

Solution #2

The basic ownership rights of common stockholders in the absence of restrictive provisions are the rights to:

1. vote in the Board of Directors election and in corporate actions that require stockholders’ approval.

2. share in corporate earnings.

3.maintain the same % of ownership when additional shares of common stock are issued(the preemptive right).

4.share in assets upon liquidation

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