Which Of The Following Statements About The Dividends Account Is (Are) Correct? (Check All That Apply.)

The correct options of this multiple choice question (mcq) are a, b, c, e, f, h and i.

Let’s briefly explain each option one by one:

For option (a), assets can be used for Dividend purposes. It is paid in the form of cash, assets, additional owner investments and other assets.

For option (b), it decreases equity as it is deducted from equity as a Contra Equity Account.

The option (c) is related with option (a) as when it is paid out of profits in the form of assets, then it increases.

The option (d) is incorrect, as it is decrease when owner investments are made as it is a contra equity account i.e., with the increase in owner investments, it decreases and vice versa.

e. This statement is “True”, as it has normal balance on debit side of its T-Account, so it increases on left side and decreases on right side of its T-Account.

f. This statement is also “True”, as it decreases Retained Earnings because it is deducted from opening retained earnings in the calculation of closing retained earnings in the statement of owners’ equity.

g. Shareholders are only legally entitled to receive the amount of dividend when the board of directors decide to declare dividend. There are not compulsory legal requirements for the corporation to declare it. So, this statement is incorrect or false.

h. Yes, the board of directors decide whether to declared the dividend to shareholders or not. They have legally powers to do so. Actually, the top management has to see many factors such as profitability, financial health, etc., before deciding to declare the dividend or not. The board of directors decide when to declare dividends and in what amount.

i. Yes, once the board of directors decide to declared dividend to shareholders, then the corporation is legally bound and liable to pay dividend to the shareholders according to their share of investments made.