Beard Marine The company reported the following information for the year ended December 31,2013:
$\begin{array}{llcc}
\text {Net income } & \$ 100,000 \
\text { Dividends } & 6,000 \
\text { Retained earnings at December 31,2013 } & \$ 120,000 \
\end{array}$
- Refer to Beard Marine.What was the economic effect of the dividend payment?

Question

Beard Marine The company reported the following information for the year ended December 31,2013:
$\begin{array}{llcc}
  \text {Net income   } & \$ 100,000 \
 \text { Dividends } & 6,000 \
\text { Retained earnings at December 31,2013 } &  \$ 120,000 \
\end{array}$
- Refer to Beard Marine.What was the economic effect of the dividend payment?

Quizplus · Accepted Answer

Dividends are payments made to shareholders from a company's profits. Therefore, the economic effect of the dividend payment is a reduction in the total retained earnings of the company. Option A is incorrect because dividends do not affect net income for the year in which they are paid. Option B is incorrect because dividends do not affect the accounting equation. Option D is incorrect because dividends are not mandatory and are only paid at the discretion of the company's board of directors.

Beard Marine the Company Reported the Following Information for the Year