Question

Which of the following illustrates how a cash dividend affects a company’s financial statements?

Balance Sheet Income Statement Statement Assets=Liab+Equity Rev.-Exp.= Net Inc. n a Cash Flow n'a n'a n'a n'a a. +OA -OA -FA n/a C. n a n a n/a na

Answer 1

option D illustrates how the cash dividends affect companies financial statement

cash dividend doesn't affect the income statement of a company and hence both the options B and C are cancelled and hence we are down to 2 options which are A and D

In option A the asset is being added/ increased that means

in case of cash (being an asset) is said to be increased and when you payout through cash dividend method it makes an outflow rather than an inflow and hence option A is cast out

In case of option D

asset i.e, cash is being decreased and

equity being retained earnings is decreased

and there is no change in the revenue or expenditure in the income statement and hence we conclude that the correct option is option D