The entry to record the declaration of a cash dividend will
A)not affect working capital.
B)reduce working capital.
C)not affect total stockholders' equity.
D)increase total stockholders' equity.

Question

Quizplus · Accepted Answer

CThe declaration of a cash dividend reduces working capital because it increases current liabilities (dividends payable) without increasing current assets, thus reducing the difference between current assets and current liabilities. It does not affect total stockholders' equity at the time of declaration; it merely reallocates part of the equity from retained earnings to dividends payable.

The Entry to Record the Declaration of a Cash Dividend