Question

If a company pays $10,000 in dividends on 12/31/2013, this will have ____ impact on equity. (increase/decrease/no impact)

Answer 1

Paying $10,000 in dividends will result in a decrease in a company's equity because dividends are paid out of retained earnings, which reduces shareholders' equity.

Step-by-step explanation:

If a company pays $10,000 in dividends on 12/31/2013, this will have a decrease impact on equity. When a company pays dividends, it is distributing part of its earnings to its shareholders. As dividends are paid out of the company's retained earnings, which is a component of shareholders' equity, the payment of dividends reduces the total equity of the company.