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
- EJ (Philippines)Lv 61 decade agoFavorite Answer
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.