Which of the following are correct statements concerning corporate dividends? a.Dividends are legal liability of a corporation to its shareholders b.Dividends paid by a corporation to another corporation receive preferential tax treatment (minimum 70% exclusion from taxable income) c.Dividends are generally paid to the shareholders before the payment of interests to the bondholders d.Dividends payments are considered tax deductible expense while interest payments are not

Corporate dividends are the payments in the form of dividends provided to the shareholders of the company as declared in the board meeting from the retained earnings after all the deductions and taxes and fixed expenses. It is a return that investors earn on their investments.Dividends are considered assets for shareholders who received them as they increase their total worth but at the same time dividends are considered a liability for the corporation as it reduces its total assets or retained earnings. After the dividend is declared at the board meeting it becomes a legal liability for the company to pay the dividend as declared. So, option a is a correct statement regarding corporate dividends.Option 2 is incorrect as only 50% is excluded from the taxable income when the dividend is paid by a corporation to another corporation. Option 3 is incorrect as dividends are paid to the shareholders after all the payments of interests, taxes, or any other expenses from the retained earnings. Option d is incorrect as interest payments are deductible as expenses so it reduces tax liability but the dividend is the amount distributed as a portion of profits and not an expense, therefore not considered as a tax-deductible expense. Hence, only option a is the correct option.

Answered: Which of the following are correct…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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	a.	Dividends are legal liability of a corporation to its shareholders
	b.	Dividends paid by a corporation to another corporation receive preferential tax treatment (minimum 70% exclusion from taxable income)
	c.	Dividends are generally paid to the shareholders before the payment of interests to the bondholders
	d.	Dividends payments are considered tax deductible expense while interest payments are not