When a company pays a dividend on common stock, it appears as
A) an expense on the income statement.
B) a reduction in the amount of retained earnings.
C) a current liability on the balance sheet.
D) dividend payments have no effect on the financial statements.

Question

Quizplus · Accepted Answer

When a company pays a dividend on common stock, it is a distribution of earnings to shareholders and reduces the amount of retained earnings on the balance sheet. It is not an expense on the income statement, nor is it a current liability. Therefore, the correct answer is B.

When a Company Pays a Dividend on Common Stock, It