Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

12. Stockholders' Equity

Dividends and Dividend Preferences

Financial Accounting

12. Stockholders' Equity

Dividends and Dividend Preferences

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Multiple Choice

Which of the following is a positive effect of a company paying dividends to its shareholders?

It signals financial strength and stability to investors.

It increases the company's tax liability.

It reduces the company's retained earnings, limiting future growth.

It decreases shareholder confidence in management.

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Verified step by step guidance

Understand the concept of dividends: Dividends are payments made by a company to its shareholders, typically as a distribution of profits. They are a way for companies to share their financial success with investors.

Analyze the positive effects of paying dividends: Paying dividends can signal financial strength and stability to investors, as it demonstrates that the company has sufficient profits and cash flow to distribute earnings while maintaining operations.

Evaluate the other options: Paying dividends does not inherently increase tax liability, reduce shareholder confidence, or limit future growth unless mismanaged. These options are either incorrect or represent potential risks rather than positive effects.

Focus on signaling financial strength: Companies that consistently pay dividends are often perceived as stable and reliable, which can attract more investors and enhance shareholder confidence.

Conclude that the correct answer is 'It signals financial strength and stability to investors,' as this is the primary positive effect of paying dividends.