Question

The payment of a cash dividend previously recorded:

a) increases liabilities and increases assets
b) reduces shareholders' equity and reduces assets
c) reduces liabilities and reduces assets
d) increases shareholders' equity and reduces liabilities

Answer 1

A cash dividend reduces shareholders' equity and reduces assets.

Step-by-step explanation:

A cash dividend is a direct payment from a firm to its shareholders. When a cash dividend is paid, it reduces shareholders' equity and reduces assets.

This is because the payment to shareholders decreases the amount of equity the company has, and the cash used to pay the dividend is removed from the company's assets.

For example, if a company pays a $1 dividend per share and has 1,000 shares outstanding, it will reduce shareholders' equity by $1,000 and decrease its cash balance by $1,000.