Two Days Before the Ex-Dividend Date, Drexel Corporation Buys 100

question 1

Multiple Choice

Two days before the ex-dividend date, Drexel Corporation buys 100 shares of Zebra Corporation stock (less than 1%) for $200,000. Drexel Corporation receives $10,000 of dividends from Zebra Corporation. Two weeks after the ex-dividend date, Drexel Corporation sells the Zebra Corporation stock for $190,000. Which of the following statements is correct?

• A)Drexel Corporation cannot recognize a capital loss.
• B)Drexel Corporation cannot take a dividends-received deduction on the Zebra Corporation dividend.
• C)Drexel Corporation will be allowed a 50% dividends-received deduction when reporting the Zebra Corporation dividend.
• D)Drexel Corporation will receive no dividends-received deduction because the stock was purchased ex-dividend.

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Definitions:

Adjusting Entry

A journal entry made at the end of an accounting period to allocate income and expenditure to the appropriate period for a more accurate financial report.

Salaries Payable

An accounting liability representing the amounts owed to employees for work performed but not yet paid.

Adjusting Entry

Journal entries made at the end of an accounting period to update account balances to their correct amounts before the preparation of financial statements.

Interest Receivable

An accounting term representing the interest income that has been earned but not yet received in cash.