Asked by Chrissy Sarran on Jul 01, 2024
Verified
The Scott Co. has a general dividend policy whereby it pays a constant annual dividend of $1 per share of common stock. The firm has 1,000 shares of stock outstanding. The company:
A) Must always show a current liability of $1,000 for dividends payable.
B) Is obligated to continue paying $1 per share per year.
C) Will be declared in default and can face bankruptcy if it does not pay $1 per year to each shareholder on a timely basis.
D) Has a liability which must be paid at a later date should the company miss paying an annual dividend payment.
E) Must still declare each dividend before it becomes an actual company liability.
Dividend Policy
Dividend Policy is a company's strategy or guidelines used to decide how much of its earnings will be paid out to shareholders in the form of dividends.
Common Stock
This is a type of security that signifies ownership in a corporation and represents a claim on part of the company's profits.
Dividends Payable
The amount of declared dividends that a company owes to its shareholders but has not yet paid.
- Acquire knowledge about the notion and effects of dividend policy on the valuation of shareholder equity.
- Acquire knowledge of the scenarios in which a company might default or become subject to lawsuits concerning dividend payments.
Verified Answer
JD
Jasleen DhillonJul 02, 2024
Final Answer :
E
Explanation :
Dividends become a company's liability only after they are declared by the company's board of directors. Until such a declaration is made, no liability exists regardless of the dividend policy.
Learning Objectives
- Acquire knowledge about the notion and effects of dividend policy on the valuation of shareholder equity.
- Acquire knowledge of the scenarios in which a company might default or become subject to lawsuits concerning dividend payments.