Question

Which of the following transactions is most likely to be recognized on a firm's statement of changes in equity? A) Buying a machine from an equipment dealer. B) Declaring a dividend on common shares. C) Investing cash in an exchange-traded fund.

Answer 1

Answer:

The answer is: B) Declaring a dividend on common shares.

Explanation:

A company´s statement of changes in equity shows the change in shareholder's equity throughout an accounting period. The main elements of these reports are:

• Net profit or loss.
• A decrease or increase in share capital reserves.
• Dividend payments made to shareholders.
• Changes in accounting policy.
• Adjustments (corrections) of prior period errors.

Dividend payments must be deducted from shareholder equity because they are a distribution of wealth to the shareholders.