Which statement is correct?
A)Dividends are never discretionary payments.
B)A corporation need only pay dividends when it declares them to be payable.
C)A company can avoid a cumulative dividend on preferred shares if it declares dividends on common shares.
D)Companies must pay the shareholders interest to compensate for the time value of money lost on the deferral of dividend payments.

Question

Quizplus · Accepted Answer

Dividends are discretionary payments made by a corporation, meaning they are declared at the discretion of the company's board of directors. A company is not obligated to pay dividends unless it declares them. The other statements are incorrect because dividends are indeed discretionary (contrary to A), cumulative dividends on preferred shares must still be paid before common shares can receive dividends (contrary to C), and there is no requirement for companies to pay shareholders interest for deferred dividends (contrary to D).

Which Statement Is Correct