Dividends:
A) are paid by a business to shareholders as compensation for services.
B) affect net income.
C) are distributions to stockholders of assets (usually cash) generated by net income.
D) are distributions to stockholders of assets (usually cash) generated by a favorable balance in retained earnings.

Question

Quizplus · Accepted Answer

Dividends are distributions of cash or assets to shareholders, which are usually generated by the net income of the business. Therefore, option C is the correct choice. Options A and B are incorrect because dividends are not a form of compensation for services or a factor that affects net income. Option D is also incorrect because retained earnings are not assets that can be distributed as dividends.