Greener Grass Co.pays a constant annual dividend of $1 a share and has 1,000 shares of common stock outstanding.The company
A)must always show a current liability on its balance sheet of $1,000 for dividends payable.
B)must still declare each dividend before it becomes an actual company liability.
C)is obligated to continue paying $1 a share each year.
D)can deduct $1,000 a year as a business expense as a result of its dividend payment.
E)can be forced into bankruptcy by its shareholders if it fails to pay at least $1 a year in dividends.

Question

Quizplus · Accepted Answer

Dividends become a liability for a company only after they have been declared by the company's board of directors. Until such a declaration is made, no liability exists regardless of past payment practices.