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:

Marginal Revenue

The augmented income obtained by selling one more unit of a good or service.

Marginal Cost

The increase in total cost that arises from producing one additional unit of output.

Competitive Market

A market structure characterized by a large number of buyers and sellers, such that no single participant can significantly influence price.

Marginal Cost

The increase in cost that arises from producing an additional unit of output.