Question

15) The declaration and immediate payment of a cash dividend will reduce the following two accounts A) Retained earings and cash B) Equity and retained earnings C) Retained earnings and dividends payable D) Common shares and cash E) Cash and dividends receivable

Answer 1

The declaration and immediate payment of a cash dividend reduces both the Retained Earnings and Cash accounts on a company's financial statements, with no direct effect on Dividends Payable, Common Shares, or Dividends Receivable accounts.

Step-by-step explanation:

The declaration and immediate payment of a cash dividend impacts a company's financial statements by reducing two specific accounts. When a cash dividend is declared and paid, it decreases the Retained Earnings account because this is where the earnings that are to be distributed to shareholders are maintained. Simultaneously, the Cash account is reduced because the dividend payment involves the outflow of cash from the company's resources. Hence, the correct answer to the question is option A) Retained earnings and cash. This transaction does not directly affect the Dividends Payable account as the payment is immediate, thus not requiring a payable liability to be recorded. Additionally, Common Shares and Dividends Receivable are not directly affected by the payment of a dividend, because Common Shares represent ownership equity and do not change with dividend payments, and Dividends Receivable would be an asset account relevant to shareholders, not the company issuing the dividend.