CHAPTER 6
DIVIDENDS AND SHARE REPURCHASES: BASICS
SOLUTIONS
1. C is correct. A stock dividend is accounted for as a transfer of retained earnings to contributed capital.
2. C is correct. A reverse stock split would increase the price per share of the stock to a higher, more marketable range that could possibly increase the number of investors who would consider buying the stock.
3. A is correct. Both statements are incorrect. A stock dividend will decrease the price per share, all other things being equal. A stock split will reduce the price and earnings per share proportionately, leaving the price-to-earnings ratio the same.
4. A is correct. By reducing corporate cash, a cash dividend reduces the current ratio, whereas a stock dividend (whatever the size) has no effect on the current ratio.
5. The typical dividend chronology is:
| Friday, 10 June | B. The declaration date is the day that the corporation issues a statement declaring a dividend. |
| Thursday, 23 June | E. The last day shares trade with the right to receive the dividend is the day before the ex-dividend date. |
| Friday, 24 June | D. The ex-dividend date is the first day that the stock trades “ex” (i.e., without) the dividend. If the stock is bought on the ex-dividend date, the seller (not the buyer) will receive the dividend. |
| Tuesday, 28 June | A. The holder-of-record date is the date that the company uses to document which shareholders will receive the dividend. |
| Sunday, 10 July | C. The payment date is the date that the ... |
