AceCom Corporation Issues Dividends to Its 30 Shareholders

question 90

Multiple Choice

AceCom Corporation issues dividends to its 30 shareholders.Each shareholder is well aware that the corporation will be insolvent and unable to pay its creditors following the dividend distribution.Efone is one such creditor.Under the Model Business Corporation Act (MBCA) ,primary liability to Efone:

• A)does not lie with the shareholders because they can never be held liable to creditors of the corporation.
• B)lies with the shareholders because they received the distribution from the corporation with knowledge of the impending insolvency.
• C)lies with the directors because they authorized the unlawful distribution of dividends.
• D)does not lie with the directors because they placed the interests of the shareholders above everything else.

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Definitions:

Marginal Cost

Marginal cost refers to the increase or decrease in the total cost when the quantity produced is incremented by one unit.

Fixed Cost

Costs that remain constant regardless of the amount of goods produced or sold, including rent, wages, and insurance premiums.

Sunk Cost

Costs that have already been incurred and cannot be recovered or refunded, and should not influence future business decisions.

Average Fixed Cost

The cost incurred for fixed inputs (rent, salaries) divided by the quantity of output produced, which decreases as production increases.