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 an advantage of a corporation paying dividends to its shareholders?

Paying dividends increases the company's retained earnings.

Paying dividends eliminates the need for financial reporting.

Dividends can attract and retain investors by providing a regular income stream.

Dividends reduce the company's cash outflows.

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Verified step by step guidance

Understand the concept of dividends: Dividends are payments made by a corporation to its shareholders, typically as a distribution of profits. They are not directly related to increasing retained earnings or reducing cash outflows.

Analyze the incorrect options: Paying dividends does not increase retained earnings; in fact, it reduces retained earnings because dividends are distributed from the company's profits. Similarly, paying dividends does not eliminate the need for financial reporting, as corporations are still required to report their financial activities.

Evaluate the correct option: Dividends can attract and retain investors by providing a regular income stream. This is an advantage because it makes the corporation more appealing to current and potential shareholders, fostering investor confidence and loyalty.

Consider the impact of dividends on cash flow: While dividends do reduce the company's cash balance, this is not considered an advantage. Instead, the focus is on the benefit of providing income to shareholders, which can enhance the corporation's reputation and market value.

Summarize the reasoning: The correct answer highlights the strategic benefit of dividends in maintaining investor interest and satisfaction, which is crucial for the corporation's long-term success and stability.