When a corporation declares a dividend:
A)Assets decrease,liabilities increase.
B)Retained earnings increase,liabilities increase.
C)Liabilities increase,retained earnings decrease.
D)Retained earnings decrease,assets increase.

Question

Quizplus · Accepted Answer

When a corporation declares a dividend, it is a distribution of earnings to its shareholders. This results in a decrease in retained earnings (a component of stockholders' equity) since the earnings are being paid out, and an increase in liabilities (dividends payable) since the corporation owes the dividend payments to its shareholders. Therefore, the best choice is C - liabilities increase, retained earnings decrease.

When a Corporation Declares a Dividend