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The declaration and payment of a cash dividend ultimately causes a(n) ______. (Check all that apply.)Multiple select question.increase in Treasury Stockdecrease in Treasury Stockdecrease in Retained Earningsdecrease in Cashdecrease in stockholders' equity

Question

The declaration and payment of a cash dividend ultimately causes a(n) ______. (Check all that apply.)Multiple select question.increase in Treasury Stockdecrease in Treasury Stockdecrease in Retained Earningsdecrease in Cashdecrease in stockholders' equity

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Solution

The declaration and payment of a cash dividend ultimately causes a:

  • decrease in Retained Earnings: When a company declares a dividend, it reduces the amount of retained earnings and creates a liability. When the dividend is paid, the liability is cleared and cash is reduced.

  • decrease in Cash: When the dividend is paid, the company's cash balance decreases because cash is given to shareholders.

  • decrease in stockholders' equity: Dividends reduce the amount of retained earnings, which is a component of stockholders' equity. Therefore, the payment of dividends decreases stockholders' equity.

The declaration and payment of a cash dividend does not directly affect Treasury Stock, so neither an increase nor a decrease in Treasury Stock is correct.

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