16) At the quarterly meeting of Tangshan Mining Corporation, held on September 1

Question

16) At the quarterly meeting of Tangshan Mining Corporation, held on September 10th, the directors declared a $1.00 per share dividend for the firm’s 100,000 shares of common stock outstanding. The net effect of declaring and paying this dividend would be to a. increase total assets by $100,000 and decrease stockholders equity by $100,000. b. increase total assets by $100,000 and increase stockholders equity by $100,000. c. decrease total assets by $100,000 and decrease stockholders equity by $100,000. d. decrease total assets by $100,000 and increase stockholders equity by $100,000.

****Note**** The answer is not (D. decrease total assets by $100,000 and increase stockholders equity by $100,000.)

Explanation / Answer

The correct answer is c. The net effect would be decrese in total assets by $ 100,000 ( decrease in cash), and decrease in stockholders' equity by $ 100,000 ( Any distribution of profits or reserves to stockholders has the effect of reducing stockholders' equity)

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