the following question is not clear to me:
Company ABC recorded $42,000 net income, declared $50,000 in dividends,and issued $7000 of new shares, What is the combined effect of these events on end-of-period assets and owners’ equity? Assets Owners’ equity A) Increase Decrease B) Decrease Increase C) Decrease Decrease
Net income and issuing new shares will increase assets and equity. Declaring a dividend will increase liabilities and decrease equity. Change in assets = $42,000 + $7,000 = $49,000. Change in equity = $42,000 + $7,000 - $50,000 = -$1,000.
The change in equity is clear to me:
Ending Retained Earnings=Beg. Ret.Earnings+ Net Income -Dividends=Beg. Ret.Earnings+ 42,000-50,000=Beg. Ret.Earnings±8000
Contributed Equity increases by $7,000
Total effect is: equity decreases by $1000.
But the change in assets I do not understand:
Assets (i.e. Cash) should increase by the Net Income of 42,000, and the money received for the new shares, $7000. But where does the money for the dividends come from. Shouldn’t there be a decrease in cash of $50,000 since the dividends are paid out in cash?