Question

Declaring a cash dividend has what effect on total stockholders’ equity?

Options:
a. No effect on total stockholders’ equity.
b. An increase in total stockholders’ equity.
c. Cannot be determined from the given information.
d. A decrease in total stockholders’ equity.

Answer 1

Declaring a cash dividend has no effect on total stockholders’ equity.

Step-by-step explanation:

Declaring a cash dividend has no effect on total stockholders’ equity. When a company declares a cash dividend, it is essentially distributing a portion of its profits to its shareholders. This results in a decrease in retained earnings, which is a component of stockholders' equity, but it is offset by an increase in the amount of cash held by the shareholders. Therefore, the net effect on total stockholders’ equity is zero.