Which of the following statements regarding dividends is true?
A)Some companies do not pay dividends even when the company is profitable.
B)Stock dividends immediately increase the total value of the stockholders' investment.
C)Cash dividends and stock dividends both decrease total stockholders' equity.
D)A corporation has a legal obligation to pay dividends each year.

Question

Quizplus · Accepted Answer

Some companies may choose to retain their profits and reinvest in the company rather than distribute dividends to shareholders. This decision is made by the company's management and board of directors. The other statements are incorrect. B) Stock dividends merely increase the number of shares held by the shareholder, but there is no immediate increase in the value of the investment. C) Cash dividends decrease retained earnings but do not decrease total stockholders' equity, while stock dividends only shift the equity between different accounts. D) A corporation has no legal obligation to pay dividends, but may have contractual obligations to certain preferred shareholders.

Which of the Following Statements Regarding Dividends Is True