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 statements about dividends is correct?

Dividends increase the retained earnings of a company.

Preferred shareholders are typically paid dividends before common shareholders.

Dividends are an expense reported on the income statement.

All corporations are legally required to pay dividends every year.

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Verified step by step guidance

Understand the concept of dividends: Dividends are distributions of a company's earnings to its shareholders, typically in the form of cash or additional shares. They are not considered an expense but rather a distribution of retained earnings.

Analyze the first statement: 'Dividends increase the retained earnings of a company.' This is incorrect because dividends reduce retained earnings, as they are paid out from the company's accumulated profits.

Evaluate the second statement: 'Preferred shareholders are typically paid dividends before common shareholders.' This is correct because preferred shareholders have priority over common shareholders when it comes to dividend payments, as outlined in the company's articles of incorporation.

Assess the third statement: 'Dividends are an expense reported on the income statement.' This is incorrect because dividends are not an expense; they are a distribution of profits and are reported in the statement of changes in equity, not the income statement.

Review the fourth statement: 'All corporations are legally required to pay dividends every year.' This is incorrect because corporations are not legally obligated to pay dividends. Dividend payments are at the discretion of the company's board of directors and depend on the company's financial position and policies.