Consider the case of a business that has had a very profitable year an

Consider the case of a business that has had a very profitable year and earned a million dollars in profits. Can it distribute a million dollars to its owners (via dividends)?

A) Yes, definitely
B) Maybe, maybe not
C) Definitely not
D) It can certainly distribute over a million dollars.

ANSWER

Answer: B
Explanation: B) Maybe, maybe not. It could distribute a million dollars if it had a million dollars of cash at the end of the year. However, it may have reinvested the million dollars in inventory, or paid off some debts of the business, leaving its cash account balance near zero. In that case, it cannot pay out a million dollars to the owners.