The net effects on a corporation of the declaration and payment of a cash dividend are to
A)increase assets and increase stockholders' equity.
B)decrease liabilities and decrease stockholders' equity.
C)decrease assets and decrease stockholders' equity.
D)increase stockholders' equity and decrease liabilities.

Question

Quizplus · Accepted Answer

When a corporation declares and pays a cash dividend to its shareholders, the corporation's cash balance decreases, resulting in a decrease in assets. Additionally, since the dividend is paid out to shareholders, there is a decrease in stockholders' equity, as the corporation's profits are being distributed to shareholders. Therefore, the net effect is a decrease in both assets and stockholders' equity.

The Net Effects on a Corporation of the Declaration and Payment