Do cash dividends paid affect a company’s breakeven point?

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A recent blog posting for the Wall Street Journal had the headline “Big Oil Reaches for a Modest Goal: Breaking Even – Energy Journal[1].”

The article stated that the “two-year slump in oil prices led…[big oil companies]…to rein in spending and lay off workers but the firms still didn’t make enough money in 2016 to cover their costs…” In a later paragraph, the author stated “At issue are the companies’ large dividends. They are paying investors the same or more as they did when oil prices were over $100 a barrel, piling on debt and selling off assets to do so.”

Discussion Questions

1. What is a breakeven point? What is the formula for the breakeven point?
2. Are cash dividends paid treated as expenses?
3. What is the accounting treatment for a company’s cash dividends declared? For its cash dividends paid?
4. What might be a better title for the Wall Street Journal blog post referenced in the story above?

[1] “Big Oil Reaches for a Modest Goal: Breaking Even – Energy Journal,” by Neanda Salvaterra, April 3, 2017, Wall Street Journal.

Instructor Resources

These resources are provided to give the instructor flexibility for use of Accounting in the Headlines articles in the classroom. The blog posting itself can be assigned via a link to this site OR by distributing the student handout below. Alternatively, the PowerPoint file below contains a bullet point overview of the article and the discussion questions.

• Student handout (pdf) (word) (contains entire blog posting + discussion questions)
• PowerPoint file (brief article overview + discussion questions)

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