All else held constant,the book value of owners’ equity will decrease when:
A)the market value of inventory increases.
B)dividends exceed net income for a period.
C)cash is used to pay an accounts payable.
D)a long-term debt is repaid.
E)taxable income increases.

Question

All else held constant,the book value of owners&rsquo; equity will decrease when:
A)the market value of inventory increases.
B)dividends exceed net income for a period.
C)cash is used to pay an accounts payable.
D)a long-term debt is repaid.
E)taxable income increases.

Quizplus · Accepted Answer

When dividends exceed net income for a period, it means that the company is paying out more to its shareholders than what it has earned. This decreases the retained earnings portion of owner's equity, leading to a decrease in the book value of owner's equity.

All Else Held Constant,the Book Value of Owners’ Equity Will