WHAT EFFECT DOES DECLARATION AND PAYMENT OF CASH DIVIDEND HAVE ON TOTAL LIABILITIES AND DEBT TO EQUITY RATIO?
A. No outcome on sum liabilities, enlarge in debt to equity ratio
B.Increase in sum liablities, enlarge in debt to equity ratio
C.No outcome on sum liabilities, diminution in debt to equity ratio
D.Decrease in sum liabilities, diminution in debt to equity ratio
My answer is D. That is correct? we know B is not an answere.
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Categories: General Debt Help
I think it's answer A.
The declaration of a cash dividend creates a liability, but then the payment of the dividend negates that liability.
The payment of the dividend also reduces equity, so debt to equity ratio increases.