Nova,Inc.is considering declaring a $100,000 cash dividend.Nova has a cash balance of $20,000 and Retained Earnings balance of $100,000.Nova should:
A)declare a cash dividend because it has enough Retained Earnings and cash.
B)declare a cash dividend because it has enough Retained Earnings.
C)not declare a cash dividend because it does not have enough Retained Earnings.
D)not declare a cash dividend because it does not have enough cash.

Question

Quizplus · Accepted Answer

Although Nova has accumulated a sufficient amount of Retained Earnings to cover the amount of the dividend,it does not have sufficient cash to pay the dividend.Nova only has $20,000 of cash and should not declare a cash dividend of $100,000.

Nova,IncIs Considering Declaring a $100,000 Cash Dividend