a company pays $880 of dividends to stockholders. indicate the amount of increases and decreases in the…
a company pays $880 of dividends to stockholders. indicate the amount of increases and decreases in the accounting equation. note: decreases to account classifications should be entered as a negative.
Answer
Explanation:
Step1: Recall accounting equation
Assets = Liabilities + Stockholders' Equity
Step2: Analyze dividend - payment effect
When a company pays dividends, it uses cash (an asset), so assets decrease by $880. Dividends are a distribution of earnings to stockholders, which reduces retained earnings (a part of stockholders' equity). So, stockholders' equity decreases by $880. Liabilities are not affected.
Answer:
| Assets | = | Liabilities | + | Stockholders' Equity |
|---|---|---|---|---|
| - 880 | = | 0 | + | - 880 |