Question

In which of the following situations would it not be uncommon for dividends to represent a return of capital to stockholders?

A. A company that pays a liquidating dividend
B. A company that recognizes both functional and physical factors in depreciation.
C. A company that uses accelerated depreciation methods.
D. A company that uses straight-line depreciation methods.

Answer 1

In a situation where a company pays a liquidating dividend, it would not be uncommon for dividends to represent a return of capital to stockholders.

Step-by-step explanation:

A return of capital to stockholders through dividends would not be uncommon in situations where a company pays a liquidating dividend. A liquidating dividend is paid when a company is winding up its operations and distributing its remaining assets to shareholders. This dividend represents a return of the shareholders' original investment in the company.

A company that pays a liquidating dividend would not uncommonly be returning capital to its stockholders since liquidating dividends are paid from the capital originally invested rather than from earnings.

In which of the following situations would it not be uncommon for dividends to represent a return of capital to stockholders? The correct answer is A. A company that pays a liquidating dividend. When a company pays a liquidating dividend, it is returning a portion of the capital that stockholders originally invested in the company, often because it is dissolving its operations or downsizing. This is different from regular dividends that are usually paid out from the company's earnings. With liquidating dividends, the payment is typically considered a return of the original investment, rather than a profit on that investment.