Question

During January 2017, Oriole Company paid a cash dividends of $2240. This transaction reduces stockholders' equity by $2240. increases expenses by $2240. reduces net income by $2240. increases stockholders' equity by $2240.

Answer 1

Reduces stockholders' equity by $2240

Step-by-step explanation:

Stockholders' equity is an account that represents the owners' net worth in the business.

First of all, dividend is not an expense and therefore it does not form part of Income statement. Hence it does not reduces the net income.

It is an appropriation of profits. Means it is the distribution or allocation of profits to the shareholders'. The event of paying dividend is something that happens after the calculation of net income.

A business's net income will increases the stockholders' equity as they are the owners' of the business and when the business management decides to pay some of those profits (net income) in the form dividends to the owners' of the business, shareholders' equity decreases.