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What effect does declaration and payment of cash dividend have on total liabilities and debt to equity ratio?

April 26, 2017Business cash debt Declaration dividend Finance liabilities payment total

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What effect does declaration and payment of cash dividend have on total liabilities and debt to equity ratio?

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I think it’s answer A. The declaration of a cash dividend creates a liability, but then the payment of the dividend negates that liability. The payment of the dividend also reduces equity, so debt to equity ratio increases.