Question

The effect of the declaration of a cash dividend by the board of directors is to:___________

Increase Decrease

a. Stockholders' equity Assets
b. Assets Liabilities
c. Liabilities Stockholders' equity
d. Liabilities Assets

Answer 1

C. Increase liabilities , decrease stockholder's equity

Step-by-step explanation:

Usually, investors or shareholders in a company would have their returns paid to them at the end of each accounting period in the form of dividends. The reward of their investment is called dividend.

Shareholders are the owners of a company. They subscribe to shares of a company and their funds is used to run the company.

The effect of the declaration of cash dividend by the board of directors is that it will increase the liabilities and decrease stockholder's equity. What this means is that paying cash dividend would further bring about an increase in the liabilities of a company whilst also reducing the amount of equity or capital of the company's stockholder.