The company reported the following information for the year ended December 31, 2019:

-Refer to Beard Marine. What was the economic effect of the dividend payment?
A)The dividend reduced net income for 2019.
B)The dividend should be added to net income if the company's accounting equation is in balance.
C)The dividend reduced total retained earnings.
D)The dividends must be paid whenever the company reports net income.

Question

The company reported the following information for the year ended December 31, 2019:
 
-Refer to Beard Marine. What was the economic effect of the dividend payment?
A)The dividend reduced net income for 2019. 
B)The dividend should be added to net income if the company's accounting equation is in balance. 
C)The dividend reduced total retained earnings. 
D)The dividends must be paid whenever the company reports net income.

Quizplus · Accepted Answer

Dividends are paid out of retained earnings, so the payment of dividends reduces total retained earnings. Therefore, choice C is the correct answer. Choices A, B, and D are incorrect because the dividend payment has no direct effect on net income or the accounting equation, and dividends are not necessarily required to be paid whenever a company reports net income.

The Company Reported the Following Information for the Year Ended