Barrett Company declared and paid a cash dividend totaling $500,000 on its common stock. As a result of this transaction, the company's debt to assets ratio will:
A)Increase.
B)Decrease.
C)Remain the same.
D)Cannot be determineD.The transaction will decrease stockholders' equity (retained earnings) and decrease an asset (cash). The debt to asset ratio is total debt/total assets. The reduction in stockholders' equity does not affect the ratio, but the decrease in assets causes an increase in the ratio.

Question

Quizplus · Accepted Answer

The payment of a cash dividend decreases assets and stockholders' equity, but does not affect the company's total debt. Therefore, the debt to assets ratio will increase.

Barrett Company Declared and Paid a Cash Dividend Totaling $500,000