32、Assume U.S. GAAP (generally accepted accounting principles) applies unless otherwise noted.
What is the effect on the accounting equation when Chamonix Inc. declares a cash dividend?

A. Assets decrease and liabilities increase.

B. Assets decrease and owners' equity decreases.

C. Liabilities increase and owners' equity decreases.

D. There is no effect on the accounting equation until the dividend is paid.

[此贴子已经被作者于2008-11-7 16:05:31编辑过]

Correct answer = C

"Financial Reporting Mechanics," Thomas R. Robinson, Hendrik van Greuning, Karen O'Connor Rubsam, R. Elaine Henry, and Michael A. Broihahn (CFA Institute, 2007)
2008 Modular Level I, Vol. 3, pp. 41-42
Study Session 7-30-d
explain the process of recording business transactions using an accounting system based on the accounting equations
The company would create (increase) a liability for dividends payable and deduct the same amount from its retained earnings, thus decreasing owners' equity. 

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