Question

Cash dividends, stock dividends, property dividends and liquidating dividends all cause retained earnings to decrease. However, stock dividends and liquidating dividends do not meet the definition of a dividend. (True/False)L

Answer 1

The above statement is False

Explanation:

It is true that Cash dividends, stock dividends, property dividends and liquidating dividends all cause retained earnings to decrease because dividends are payable out of those available retained earnings.

According to definition of Dividend, A dividend is distributed to it's shareholders on regular basis out of company's profit whether in cash or otherwise i.e. Stocks. And therefore Stock dividend and liquidating are meeting the definition of dividend. Because in stock dividend additional shares are distributed to existing shareholders (it is also called stock split) and liquidating dividend are paid out of amount amount invested by shareholders.

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