Question

Owners of Tri-State Industries are sent a dividend check from the company. For this transaction, what is the effect on the accounting equation for Tri-State Industries?

1) Assets decrease and stockholders' equity decreases
2) Assets increase and stockholders' equity increases
3) Liabilities increase and stockholders' equity decreases
4) Liabilities increase and stockholders' equity increases

Answer 1

The issuance of a dividend check by Tri-State Industries leads to a decrease in both assets and stockholders' equity. The correct answer is option 1).

Step-by-step explanation:

When Tri-State Industries issues a dividend check to its owners, there's a specific impact on the accounting equation for the company. The payment of a dividend results in the company's assets decreasing because cash is paid out to the shareholders.

Concurrently, the stockholders' equity also decreases, since dividends are essentially a portion of the company's earnings that are being distributed back to shareholders rather than retained within the company. This means the accounting equation reflects a decrease in both assets and stockholders' equity when a dividend is issued.

Therefore, the effect of this transaction is that assets decrease and stockholders' equity decreases.