Question

9. Determine the financial effect on the day that dividends are declared if they won’t be...

9. Determine the financial effect on the day that dividends are declared if they won’t be paid until a future date:

Assets, Liabilities, SHE, Net Income, Retained Earnings

A. No Effect, Increase, Decrease, No Effect, Decrease

B. Decrease, Decrease, No Effect, Decrease, Increase

C. No Effect, No Effect, No Effect, Decrease, Increase

D. Increase, Decrease, Increase, Increase, Decrease

E. No Effect, No Effect, No effect, No Effect, No Effect

Business   Accounting   
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Homework Answers

Answer #1

Answer is option A - No Effect, Increase, Decrease, No Effect, Decrease

When the dividend is declared the following entry is posted -

(Debit) Retained Earnings xxx

(Credit) Dividends Payable xxx

When Retained Earnings is debited it decrease the retained earnings balance and also decrease the Shareholders Equity (SHE) as retainted earnings is part of SHE. Dividends payable is a liability account and hence when it is credited it increases the Liabilities.

There will not be any impanct on Assets and Net Income when the dividend is declared.

Option A meets all the above mentioned criteria. Hence, it the right answers and all other options are wrong.

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