Question

The cumulative effect of the declaration and payment of a cash dividend on a company's financial statements is to increase total expenses and total liabilities. decrease total liabilities and stockholders' equity. increase total assets and stockholders' equity. decrease total assets and stockholders' equity.

Answer 1

decrease total assets and stockholders' equity

Step-by-step explanation:

At the time of declaration a liability increases, against dividend expense.

At the time of payment that liability is settled by paying in cash.

Thus net effect of both transactions is decrease in cash and increase in expenses.

If we carefully analyse the options, then

we get that there is decrease in assets in the form of cash and decrease in equity as expenses decrease retained earnings which are owner's equity.

Therefore, correct option is

decrease total assets and stockholders' equity.