Day: May 2, 2020

A dividend is . . .?

Select ONE answer:

1. a share of a company‘s profit.
2. interest paid on a company‘s borrowings.
3. always paid to banks and other creditors.
4. None of the above.

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

1. Correct – Dividends are paid by companies to their shareholders (both owners of ordinary shares and owners of preference shares, where applicable) as a return on the investment they have made in the company.
2. Not correct – Interest paid by a company on its borrowings is an expense which is deducted when calculating profit whereas dividends are an appropriation of the profit earned by a company.
3. Not correct – Dividends may be paid by a company to banks and other creditors, but only if they are shareholders in the company.
4. Not correct

 

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