Excerpts from the balance sheet of Milton Corporation as of April 30, 1997 are presented as follows:
Cash $725,000 -
Accounts receivable (net) $1,640,000
Inventories $2,945,000 -
Total current assets $5,310,000 -
Accounts payable $1,236,000 -
Accrued liabilities $831,000 -
Total current liabilities $2,067,000
The board of directors of Milton met on May 5, 1997 and declared a quarterly cash dividend in the amount of $200,000 ($0.50 per share). The dividend was paid on May 28, 1997 to shareholders of record as of May 15, 1997. Assume that the only transactions that affected Milton during May 1997 were the dividend transactions. Milton's total shareholders' equity would be
Click on the arrows to vote for the correct answer
A. B. C. D. E.B
The declaration of the dividend results in an increase in dividends payable (a current liability account) and a corresponding decrease in retained earnings (a shareholders' equity account). Therefore, the declaration of a dividend reduces shareholders' equity. The subsequent payment of the dividend has no effect on shareholders' equity because that transaction reduces cash and reduces the previously recorded dividends payable.