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

Cash dividends are an example of which of the following elements?

A form of stock repurchase

A liability that increases retained earnings

An expense on the income statement

Distribution of earnings to shareholders

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Verified step by step guidance

Understand the concept of cash dividends: Cash dividends are payments made by a corporation to its shareholders, typically from its retained earnings. They represent a distribution of the company's profits to its owners.

Recognize that cash dividends are not a form of stock repurchase: A stock repurchase involves a company buying back its own shares from the market, reducing the number of outstanding shares. This is different from distributing cash dividends.

Clarify that cash dividends are not a liability that increases retained earnings: When a company declares a dividend, it creates a liability (Dividends Payable) until the dividend is paid. However, this reduces retained earnings rather than increasing it.

Understand that cash dividends are not an expense on the income statement: Expenses are costs incurred to generate revenue and are reported on the income statement. Dividends, on the other hand, are distributions of earnings and do not appear on the income statement.

Conclude that cash dividends are a distribution of earnings to shareholders: This is the correct classification, as dividends represent a portion of the company's profits returned to its shareholders as a reward for their investment.