Stockholders' equity will be reduced by the amount in the dividends account.

Name: Stockholders' equity will be reduced by the amount in the dividends account.
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Question

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Dividends represent a distribution of a company's profits to its shareholders. Since stockholders' equity represents the residual claim of a company's assets after all liabilities are paid, paying out dividends reduces the amount of assets available to shareholders, thus reducing stockholders' equity.

Stockholders' Equity Will Be Reduced by the Amount in the Dividends