Which of the following statements about when cash dividends can be paid is not correct?
A)The Retained Earnings account must have an accumulated balance sufficient to cover the amount of the dividends to be paid.
B)The Cash account must have a balance sufficient to pay the dividends.
C)The board of directors must have declared the dividend before it can be paid.
D)Loan covenants cannot restrict the payment of dividends.

Question

Quizplus · Accepted Answer

State laws often restrict dividends to the balance in Retained Earnings.A company may be further restricted by clauses in its loan agreements that require an even larger minimum balance in Retained Earnings.If the company were to violate such a loan covenant,a lender could require renegotiation of the loan and possibly demand its immediate repayment.

Which of the Following Statements About When Cash Dividends Can