The ultimate effect of incurring an expense is a reduction in shareholders' equity. The declaration of a cash dividend also reduces shareholders' equity. Explain the difference between an expense and a cash dividend and explain why they have the same effect on shareholders' equity.
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- Which of the following is true of a stock dividend? A. It is a liability. B. The decision to issue a stock dividend resides with shareholders. C. It does not affect total equity but transfers amounts between equity components. D. It creates a cash reserve for shareholders.What do an appropriation of accumulated profits and a declaration of a cash dividend have in common? * a. Both increase the amount of appropriated accumulated profits b. Both result in a decrease in unappropriated accumulated profits c. Both have the same consequences for shareholders d. Both permanently reduce future ability to pay dividendsThe following statements are true regarding dividends. Which of the following is incorrect? a) Dividends are distributions of earnings or capital to shareholders in proportion to their shareholdings. b) If an entity has a deficit, paying dividends is still considered legal. c) Liquidating dividends are distributions of capital to shareholders in proportion to their shareholdings. d) The common forms of dividends out of earnings are cash dividend, property dividend and share dividend.
- Which of the following statements is incorrect? A. Dividend payments can be influenced by cash availability. B.Dividends shall not be paid out of assets to protect the creditors. C. Corporations must pay their investors dividends so they will not be charged penalty for improper accumulation. D. Additional funding may be sourced from retained earnings.Which statement regarding dividends is false?a. Dividends represent a sharing of corporate profits withowners.b. Both stock and cash dividends reduce retained earnings.c. Cash dividends paid to stockholders reduce net income.d. None of the above statements are false.What is the difference between dividends that are declared and dividends that are paid? There is no difference When they are declared they reduce Net Income and when they are paid they reduce cash When they are declared they increase Net Income and when they are paid they reduce cash When they are declared they reduce Common Stock and when they are paid they increase Dividends Payable When they are declared they reduce Retained Earnings and when they are paid they reduce Dividends Payable
- the declaration of cash dividends and stock dividends both reduce retained earnings true falseWhen a company issues (i.e., sells) common shares to investors in exchange for cash, the effect of this transaction is an increase in assets and an increase in shareholders’ equity. True FalseWhich of the following regarding retained earnings is false?a. Retained earnings is increased by net income.b. Retained earnings is a component of stockholders’equity on the balance sheet.c. Retained earnings is an asset on the balance sheet.d. Retained earnings represents earnings not distributed tostockholders in the form of dividends
- An effect of a bonus issue to all shareholders is to: increase the total amount of shareholders' funds. make the amount that was previously recorded as retained earnings no longer available for the payment of cash dividends. alter the current shareholders' proportionate share of the company's net assets. increase the total assets of the company.Why the dividend does exceeds the balance in retained earnings, the excess referred to as a liquidating dividend?How does the declaration of a cash dividend affect a company’s assets, liabilities, and equity?a. It results in an increase to liabilities and a decrease to stockholders’ equity, while assetsremain the same.b. It results in an increase to liabilities and a decrease to assets, while stockholders’ equityremains the same.c. It results in an increase to assets and a decrease to liabilities, while stockholders’ equityremains the same.d. It results in an increase to stockholders’ equity and a decrease to assets, while liabilitiesremain the same