Which of the following statements is NOT true about when Cash dividends can be paid?
A) The retained earnings account must have an accumulated balance sufficient to cover the amount of the dividends to be paid.
B) The cash account must have a balance sufficient to pay the dividends.
C) The board of directors must have declared the dividend before it can be paid.
D) Loan covenants do not restrict the payment of dividends.

Question

Quizplus · Accepted Answer

Loan covenants can restrict the payment of dividends, so statement D is not true. Loan covenants are agreements between borrowers and lenders that specify certain restrictions or requirements that the borrower must adhere to. These can include restrictions on the payment of dividends, as lenders want to ensure that the borrower has enough cash flow to meet its debt obligations. Therefore, the statement that loan covenants do not restrict the payment of dividends is false.

Which of the Following Statements Is NOT True About When