Dividends to Preferred Stockholders Are Deducted from Net Income When

question 186

Multiple Choice

Dividends to preferred stockholders are deducted from net income when calculating the return on common stockholders' equity ratio because

• A)dividends are not an expense on the income statement.
• B)the ratio is an indicator of the return on "common" stockholders' equity,not the return on preferred stock.
• C)dividends are only available for distribution to common stockholders.
• D)conservatism indicates that shareholders prefer a smaller numerator.

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Definitions:

Absolute Values

A mathematical operation that determines the magnitude of a number without regard to its sign, represented as the distance from zero on the number line.

Favorite Bundle

A term in economics, particularly in consumer theory, referring to the combination of goods and services that maximizes a consumer's utility or satisfaction given their budget constraints.

Indifference Curves

A graphical representation of different bundles of goods between which a consumer is indifferent, showing combinations that give the consumer the same level of satisfaction.

Bundle

A set of goods or services that are sold or consumed together as a single package.