Question

An increase in the Dividends Declared account will result in

a. an increase in expenses.
b. an increase in the Retained Earnings account.
c. a decrease in the Retained Earnings account.
d. a decrease in expenses.

Answer 1

An increase in Dividends Declared leads to a decrease in Retained Earnings, as dividends are paid out to shareholders from the company's earnings.

Step-by-step explanation:

An increase in the Dividends Declared account does not result in an increase in expenses. Instead, it results in a decrease in the Retained Earnings account. When a company declares dividends, it is committing to pay out a portion of its earnings to shareholders, which reduces the amount of earnings that are retained in the company for future use or investment. Therefore, the correct answer is c. a decrease in the Retained Earnings account.