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:

Investment Account

A financial account held at a bank or brokerage used to buy, sell, and hold securities like stocks, bonds, and mutual funds.

Consolidated Dividends

Dividends paid by a parent company that include those received from and paid out to its subsidiaries.

Amortization

The gradual reduction of the book value of an intangible asset or loan balance over time through regular payments.

Net Income

The net income of a company following the deduction of all expenses and taxes from its total revenues.