Benson 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)Decrease.
B)Increase.
C)Remain the same.
D)Cannot be determined.

Question

Quizplus · Accepted Answer

The payment of a cash dividend is an asset use transaction;the current asset account Cash decreases and the stockholders' equity account Retained Earnings also decreases.The debt to assets ratio is calculated by dividing total liabilities by total assets.This transaction does not affect the numerator but decreases the denominator.As a result,this transaction causes the debt to assets ratio to increase.

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