Question

If a company pays dividends of $8000, total stockholders:______.a. equity will be reduced by $8000. b. retained earnings will be reduced by $8000. c. both retained earnings and total stockholders equity will be reduced by $8000. d. net income will be reduced by $8000.

Answer 1

Answer:

b. retained earnings will be reduced by $8000

Explanation:

The journal entries are as follows:

Retained earning A/c Dr  $8,000

             To Dividend payable A/c $8,000

(Being the dividend is declared)

Dividend payable A/c Dr $8,000

         To Cash A/c $8,000

(Being the dividend is paid in cash)

So at the time of dividend paid, the retained earnings got reduced by $8,000