Lewis Corporation reported the following information for the year ended December 31,2014: What was the economic effect of the payment of Lewis' dividends?
A)The dividend reduced net income for 2014.
B)The dividend should be equal to net income if the company's accounting equation is in balance.
C)The dividends reduce total retained earnings for the year.
D)The dividends must be paid whenever Raymond Corp.reports net income.

Question

Lewis Corporation reported the following information for the year ended December 31,2014:  What was the economic effect of the payment of Lewis' dividends?
A)The dividend reduced net income for 2014. 
B)The dividend should be equal to net income if the company's accounting equation is in balance. 
C)The dividends reduce total retained earnings for the year. 
D)The dividends must be paid whenever Raymond Corp.reports net income.

Quizplus · Accepted Answer

When a company pays dividends, it reduces its retained earnings. Retained earnings represent the cumulative profits of a company that have not been distributed to shareholders as dividends. Therefore, option A is not correct as dividends do not affect net income. Option B is not correct as dividends are not required to be equal to net income. Option D is not correct as dividends are not necessarily paid whenever a company reports net income.

Lewis Corporation Reported the Following Information for the Year Ended