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14 October, 18:04

If a company pays dividends of $10,000,

A) net income will be reduced by $10,000.

B) Retained earnings will be reduced by $10,000.

C) Stockholders' equity will be reduced by $10,000.

D) Both retained earnings and stockholders' equity will be reduced by $10,000.

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  1. 14 October, 19:56
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    D) Both retained earnings and stockholders' equity will be reduced by $10,000.

    Explanation:

    Dividend paid is usually deducted from the retained earnings. The retained earnings is the accumulated balance in the company's net income/loss over time shown in the balance sheet as a part of the owners equity.

    The other part being the common stock.

    Hence when dividend is paid, the retained earnings reduces and so does the shareholder's equity.
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