Final answer:
A liquidating dividend is indeed based on paid-in capital and represents a return of the shareholder's investment, different from a regular dividend paid from profits. The statement is true. Additionally, sharecroppers did pay their rent in the form of a share of their crops.
Step-by-step explanation:
A liquidating dividend is not based on paid-in capital; rather, a liquidating dividend is paid out not from the earnings or profits of a company but from the company's paid-in capital and it represents a return of the shareholder's original investment. This is different from regular dividends which come from the company's profits. When a company pays a regular dividend, it distributes a portion of its profits to shareholders.
The amount each shareholder receives is proportional to the number of shares they own. For example, stable companies like Coca-Cola often provide dividends to their shareholders, and these dividends can serve as a source of income, which investors might rely on for many years.
Therefore, the statement that "A dividend based on paid-in capital is termed a liquidating dividend" is true. This type of dividend reduces the company's overall equity as it's returned to the shareholders.
As for Exercise 17.3.3, sharecroppers were indeed tenant farmers who would pay their rent by providing a portion of their crops to the landlord.