Which of the following statements about the declaration and payment of cash dividends is correct?
A)Declaration and payment of cash dividends will reduce the amount of net income.
B)Declaration and payment of cash dividends will not reduce the Retained Earnings balance.
C)Declaration and payment of cash dividends will reduce the amount of cash available to invest in assets.
D)Declaration and payment of cash dividends is calculated on the amount of shares of stock issued,not the amount of shares outstanding.

Question

Quizplus · Accepted Answer

When the dividend is declared,the stockholders' equity account,Dividends,is debited and the liability account,Dividends Payable,is credited.When the dividend is paid,the liability account,Dividends Payable,is debited and the asset account,Cash,is credited.
As a result,the declaration and payment of dividends reduce the amount of cash available to invest in assets.Dividends,a temporary account,is closed into (and decreases)Retained Earnings at each accounting year-end.Dividends are paid only on outstanding shares.

Which of the Following Statements About the Declaration and Payment