Statutory restrictions on dividend payments include all of the following except:
A) if liabilities exceed assets.
B) if the amount of the dividend exceeds the firm's retained earnings.
C) if the dividend is being paid from capital invested in the firm.
D) if, because of the dividend payment, the firm intends to sell new common stock to fund its capital budget.

Question

Quizplus · Accepted Answer

All of the options listed (A-C) are legitimate reasons for statutory restrictions on dividend payments. However, option D is not a valid reason for restrictions on dividend payments. A company can pay a dividend and still raise additional funds through the sale of new common stock to fund its capital budget. It is not a requirement that a company must rely solely on retained earnings to pay a dividend.

Statutory Restrictions on Dividend Payments Include All of the Following