Final answer:
The statement that excessive payments for salaries and rents related to stock ownership are treated as dividends is true.
Dividends are a portion of company profits paid to shareholders based on their shareholdings, contrasting with capital gains which are profits from the sale of the stock.
Step-by-step explanation:
The statement that if excessive payments for salaries and rents are closely related to the percentage of stock owned by the recipients, the payments are generally treated as dividends, is true.
This is because when a company distributes its earnings to shareholders, it can either reinvest the profits into the company or pay a portion as dividends.
Dividends are paid based on the number of shares owned, so if someone is receiving high payments that correlate with their shareholdings, those payments may be considered dividends.
For instance, a stable company like Coca-Cola pays dividends which act as a return on the investment for shareholders.
The percentage of the profits earned as dividends can vary. Historically, from the 1950s to the 1980s, firms in the S&P 500 index paid annual dividends of about 4% of the stock value.
However, since the 1990s, dividends have declined to values closer to 1% to 2%. This is in contrast to capital gains, which are the increase in value of the stock between when it is bought and when it is sold.