Question

Which of the following statements is CORRECT?

Answer 1

Answer:

E

Explanation:

If a company pays more divided than net income, its retained will reduce more than reported in the previous balance sheet. This is beacue dividends are paid out of retained earnings; therefore where the dividend payment is higher than the net income.

Answer 2

Answer:

If a company pays more in dividends than it generates in net income, its retained earnings as reported on the balance sheet will decline from the previous year's balance.

Explanation:

The dividend is shown while preparing the retained earning statement. So, it does not affect the net income.

The highly liquid marketable securities does not show a decline in the current assets

If the long term bonds are issued to purchase fixed assets it would show under the long term liabilities and the long term assets rather than the current assets and the current liabilities

Account receivable are reported in the current assets rather than the current liabilities

We know that

The ending balance of retained earning = Beginning balance of retained earnings + net income - dividend paid

If the dividend amount is more than the net income so the ending balance of retained earning will decline than its beginning year balance.