Cash dividends cause a decrease in both assets and stockholders' equity of the corporation.

Question

Quizplus · Accepted Answer

Cash dividends are declared to distribute profits to the shareholders. When cash dividends are paid, the assets of the corporation decrease as cash goes out, and stockholders' equity also decreases because the retained earnings, which is a part of stockholders' equity, reduce by the amount of cash dividends paid. Therefore, cash dividends cause a decrease in both assets and stockholders' equity of the corporation.

Cash Dividends Cause a Decrease in Both Assets and Stockholders