In a Study Session, a Classmate Makes This Statement "Dividends

question 49

Multiple Choice

In a study session, a classmate makes this statement "Dividends are listed as expenses on the income statement." What is your best response to this statement?

• A)I've been struggling with that concept and I feel that dividends should be shown on the balance sheet as assets.
• B)You are right.Revenues and expenses are shown on the income statement.Dividends are a cost of generating revenues and that makes them an expense.Why else would a corporation pay dividends?
• C)Dividends represent a portion of corporate profits paid to the shareholders.They belong on the retained earnings statement.
• D)Dividends are deducted from retained earnings on the balance sheet.

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Definitions:

Sensitivity Analysis

A strategy for determining the influence that different independent variable levels have on a targeted dependent variable, under predefined assumptions.

Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating the degree to which a company can increase profits by increasing sales.

Forecasting Errors

Discrepancies between predicted values and the actual outcomes that were not anticipated in statistical forecasts.

Contribution Margin

The difference between the sales revenue of a product and its variable costs.