Asked by Steven Walsh on Jul 09, 2024
Verified
Klingon Corporation has only one class of shares,its common shares.Klingon has assets of $200,000 and liabilities of $160,000.It has $40,000 of excess liquidity that it does not need to pay its currently maturing obligations.What is the maximum property dividend that Klingon may pay to its common shareholders?
A) $60,000
B) $10,000
C) $40,000
D) $30,000
Property Dividend
A type of dividend payment made in assets other than cash, such as stocks or physical assets.
Excess Liquidity
The situation where an organization or individual possesses more cash resources than are necessary for current operations or investments, potentially indicating underutilization of assets.
Common Shareholders
Shareholders who claim the residual profits and assets of a corporation, and usually have the exclusive power and right to elect the directors of the corporation.
- Comprehend the outcomes and responsibilities tied to the allocation of dividends, especially in instances of insolvency.
Verified Answer
NT
Nicole TasatmazJul 12, 2024
Final Answer :
C
Explanation :
Klingon Corporation has excess assets of $40,000 ($200,000 assets - $160,000 liabilities).As such,it can give a maximum property dividend of $40,000 to its common shareholders.Since it also has $40,000 of excess liquidity,payment of this dividend will eliminate all of Klingon Corporation's excess assets and excess solvency.
Learning Objectives
- Comprehend the outcomes and responsibilities tied to the allocation of dividends, especially in instances of insolvency.