If a corporation distributes cash to its stockholders, then
A) there has been a violation of accounting principles.
B) stockholders' equity will increase.
C) stockholders' equity will decrease.
D) there will be a new liability showing the stockholders owes money to the business.

Question

Quizplus · Accepted Answer

When a corporation distributes cash to its stockholders, it is paying out a portion of their ownership in the company. This decreases the retained earnings account, which is a component of stockholders' equity. Therefore, the correct choice is C, as stockholders' equity will decrease.

If a Corporation Distributes Cash to Its Stockholders, Then