Both interest expense on borrowing and dividends on common stock reduce net assets and reduce shareholders equity.

Question:

Both interest expense on borrowing and dividends on reduce net assets and reduce shareholders’ equity. Accountants treat interest as an expense in measuring net income but do not treat dividends on as an expense. Explain the rationale for this apparent inconsistency.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...