The payment of a cash dividend was debited to Retained Earnings and credited to Cash.This error would cause:

Question

Quizplus · Accepted Answer

When a cash dividend is declared, it reduces the amount of retained earnings, which is a component of stockholders' equity. If the payment of a cash dividend was incorrectly debited to Retained Earnings, it would decrease the amount of retained earnings and therefore decrease stockholders' equity. However, if the payment of a cash dividend was credited to Retained Earnings, it would increase stockholders' equity, which would overstate the period end stockholders' equity. Therefore, choice C is the correct answer as it involves an understatement of stockholders' equity.

The Payment of a Cash Dividend Was Debited to Retained