Question

Fen Company paid a $300 cash dividend. Which of the following shows how this event will affect the company's accounting equation? The letters "NA" indicate that the component of the equation is not affected.

Assets = Liabilities + Common Stock + Retained Earnings
A. ($300) = NA + NA + ($300)
B. ($300) =($300) + NA + NA
C. $300 = NA + NA + $300
D. ($300) = NA + ($300) + NA

Answer 1

The payment of a $300 cash dividend would decrease Fen Company's assets and retained earnings by $300 each, with no effect on liabilities or common stock, correctly shown as A. ($300) = NA + NA + ($300) in the accounting equation.

Step-by-step explanation:

When Fen Company paid a cash dividend of $300, it would have reduced its assets (specifically cash) by $300 and also reduced its retained earnings by $300 since dividends are a distribution of profits to shareholders and are subtracted from the earnings retained in the company.

The correct representation of how this would affect the company's accounting equation is thus:
A. ($300) = NA + NA + ($300)

Assets decrease because the cash has been paid out, and there is no change in liabilities or common stock. Retained earnings are reduced because dividends are paid out of retained earnings.