Asked by Kericia Halliday on Jul 22, 2024
Verified
Ramos Repair Company is paying a cash dividend. How does this transaction affect Ramos Repair Company's accounting equation?
A) increase in assets (Accounts Receivable) and decrease in assets (Cash)
B) decrease in assets (Cash) and decrease in stockholders' equity (Dividends)
C) decrease in assets (Cash) and decrease in liabilities (Accounts Payable)
D) increase in assets (Cash) and decrease in stockholders' equity (Dividends)
Accounting Equation
The fundamental equation of accounting, representing the relationship between assets, liabilities, and owner's equity (Assets = Liabilities + Equity).
Cash Dividend
A payment made by a company out of its profits to its shareholders, typically in the form of cash.
Stockholders' Equity
The portion of a company's assets that belongs to the shareholders, calculated as the company's total assets minus its total liabilities.
- Distinguish and discern among diverse transaction categories and their effects on the accounting equation.
- Understand the impact of modifications in assets, liabilities, and equity on a firm's financial reports.
Verified Answer
EM
Estefani MaldonadoJul 23, 2024
Final Answer :
B
Explanation :
When a company pays a cash dividend, it decreases its cash balance (an asset account) and decreases stockholders' equity (a liability account) since it is paying out a portion of its profits to shareholders. Therefore, the accounting equation is affected by a decrease in assets (Cash) and a decrease in stockholders' equity (Dividends).
Learning Objectives
- Distinguish and discern among diverse transaction categories and their effects on the accounting equation.
- Understand the impact of modifications in assets, liabilities, and equity on a firm's financial reports.