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

question 214

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 that are 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:

Depreciation Expense

The allocated amount of the cost of an asset over its useful life, used to account for declines in value.

Accrued Revenues

Revenues that have been earned but not yet received in cash or recorded by the entity, representing assets on the balance sheet.

Unearned Rent

Income received by a landlord for a period of time that has not yet passed; considered a liability until earned.

Adjusted Trial Balance

A financial statement that lists all accounts and their balances after adjustments have been made.