The combined effect of the declaration and payment of a cash dividend on a company's financial statements is to:
A)increase total liabilities and decrease stockholders' equity.
B)increase total expenses and decrease assets.
C)increase total assets and increase stockholders' equity.
D)decrease total assets and decrease stockholders' equity.

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.The net effect of these entries is a decrease in assets and a decrease in stockholders' equity.

The Combined Effect of the Declaration and Payment of a Cash