Series 7 Exam Question 314: Answer and Explanation

Question: 314

When a corporation declares a cash dividend, which of the following is true in relation to the corporation's balance sheet?

• A. Assets decrease.
• B. Liabilities increase.
• C. Working capital remains the same.
• D. Stockholder's equity increases.

Correct Answer: B

Explanation:

B. When a corporation declares a cash dividend, its liabilities increase. Liabilities are something that is owed. Once a corporation declares a dividend, it must pay it. The assets will remain the same until it pays the dividend, and then the assets will decrease. The working capital and stockholder's equity decrease when a corporation declares a cash dividend.