Select those statements below that are true about cash dividends.
a) on the payment date, current assets are decreased.
b) on the payment date, retained earnings is decreased.
c) on the declaration date, liabilities are increased.
d) on the date of record, retained earnings is decreased.

A and C

Explanation: Dividends is an amount of money that is paid out to shareholders by its company. The cash used for this payout comes from the profits that the company made. When dividends are going to be issued, they need to be declared first. Once declaration has occurred this can then be recorded in the books, as it is a guarantee that dividends will be paid out. Dividends payable account is created, and sits in the books until dividends are paid out. On payment date the dividends payable account is closed off, and the bank account is decreased, as cash is leaving the company. This means the following multiple choice options apply:

A) On payment date, current assets are decreased. CORRECT.

When the dividends are actually paid out, then the bank account decreases. Bank is a current asset, which means bank only decreases on payment date.

B) On payment date, retained earnings is decreased. INCORRECT.

Retained earnings are actually affected on declaration date. On declaration date the company decides that it will issue dividends and processes this transaction by debiting retained earnings, as an indication that the profits of the business will decrease on payment date.

C) On declaration date, liabilities are increased. CORRECT.

When the company states that they will issue dividends, they will normally pay it out at a later date. This creates a liability, as an obligation exists that will be fulfilled on a later date.

D) On the date of record, Retained earnings is decreased. INCORRECT.

The record date is the last date to confirm which shareholders will actually qualify to receive a dividend. This has no affect on the financials of the business, and does not constitute any transaction being recorded.

a. $48.75

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