The cumulative effect of the declaration and payment of a cash dividend on a company's financial statements is to
A) decrease both total liabilities and shareholders' equity.
B) increase both total expenses and total liabilities.
C) increase both total assets and shareholders' equity.
D) decrease both total assets and shareholders' equity.

Question

Quizplus · Accepted Answer

The declaration of a cash dividend creates a liability, reducing shareholders' equity. When paid, it decreases total assets (cash) and eliminates the liability.

The Cumulative Effect of the Declaration and Payment of a Cash