Dividends on common stock are which one of the following? A. Only Partially taxable to...

Question:

Dividends on common stock are which one of the following?

A. Only Partially taxable to high-income individual shareholders

B. Payable at the discretion of a firm's president

C. Paid out of aftertax profits

D. Paid to holders of record as of the declaration date

E. Treated as a tax-deductible expense to the paying firm

Dividends:

Dividends are a way in which the company pays out its earnings to the stockholders. The dividend payment is not obligatory for the firm in case of equity shareholders while it is obligatory for preferred shareholders if the firm chooses to pay any dividends.

Answer and Explanation:

Dividends on common stock are which one of the following?

C. Paid out of aftertax profits

Only after all the liabilities have been paid, dividends are paid.


Let's analyze the incorrect options:

A. Only Partially taxable to high-income individual shareholders.

The dividends are taxable fully as ordinary income. However low-income investors may not have to pay any tax.

B. Payable at the discretion of a firm's president - Dividends are payable at the discretion of the board.

D. Paid to holders of record as of the declaration date - Paid to holders of record as of the holder of the record date.

E. Treated as a tax-deductible expense to the paying firm - Dividends are non-tax deductible to the firm.


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Cash Dividends & Dividend Payment

from Finance 101: Principles of Finance

Chapter 16 / Lesson 1
4.3K

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