Lewis Corporation reported the following information for the year ended December 31, 2016: $\begin{array}{lr}
\text { Net income } & \$ 10,000 \
\text { Dividends } & 6,000 \
\text { Retained earnings at December } 31,2016 & 25,000
\end{array}$ ? What was the economic effect of the payment of Lewis' dividends?
A) The dividend reduced net income for 2016.
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

Quizplus · Accepted Answer

Dividends reduce retained earnings because they are distributions of earnings to shareholders and are not an expense that affects net income. They are subtracted from retained earnings, which is the accumulation of all past net income minus any dividends paid out.

Lewis Corporation Reported the Following Information for the Year Ended