Anonymous
Anonymous asked in Business & FinanceOther - Business & Finance · 1 decade ago

what effect does the declaraction and payment of a cash dividend have on total liabilities and dept-to-equity?

ratio? a. no effect on total liabilities,decrease in debt-to-equity ratio. b.no effect on total liabilities, increase in debt-to-equity ratio, c.decrease in total liabilities, decrease in debt-to-equity ratio

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  • 1 decade ago
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    Answer: B

    When cash dividend is declared and paid, accounting entry is:

    (Dr) Retained Earnings xxxxx

    (Cr) Cash xxxxx

    Since the total equity decreased (by debiting retained earnings), debt - equity ratio will increase. However, since no entry has been on liability (the entry affects only retained earnings (equity) and cash (asset)), total liability is not affected.

    Source(s): My brain only.
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