When a Corporation Pays a Previously Declared Cash Dividend, Which

question 4

Multiple Choice

When a corporation pays a previously declared cash dividend, which of the following is true?

• A) Cash increases.
• B) Liabilities decrease.
• C) Equity decreases.
• D) No entry is necessary.

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Definitions:

Gift Tax

A federal tax on the transfer of property by gift from one individual to another with the donor being primarily responsible for paying the tax.

FMV

Fair Market Value, an estimation of the market value of a property or asset, based on what a knowledgeable, willing, and unpressured buyer would likely pay to a knowledgeable, willing, and unpressured seller in the market.

Adjusted Basis

The original cost of an asset adjusted for factors such as depreciation or improvements, used to calculate capital gains or losses for tax purposes.

Straight-line Depreciation

A method of calculating the depreciation of an asset evenly over its useful life.