[nalratoss]

Can anyone explain why these seemingly similar questions end up having two different answer choices?
Liquidating dividends, means part of paid in capital goes out as dividend (dividend declared is greater than RE). You’re liquidating your own contributed capital.

1. A corporation declared a dividend, a portion of which was liquidating. How would this distribution affect each of the following?
Additional Paid-in Capital Retained Earnings

a. Decrease No effect
b. Decrease Decrease
c. No effect Decrease
d. No effect No effect
Answer is decrease for both

2. Ole Corp. declared and paid a liquidating dividend of $100,000. This distribution resulted in a decrease in Ole’s

Paid-in capital Retained earnings

No No

Yes Yes

No Yes

Yes No

This time, answer is D “Yes No”.

WTH?

[Anthony]

On problem #2, it says it's just paying just the liquidating dividend, which means nothing has happened to r/e.

[CPAIN2K17]

Because in the first question, only a portion of the dividend was liquidating. So the liquidating portion reduces APIC while the non liquidating portion reduces RE. (Both are decreased)

The second question, it's just a liquidity dividend, which only reduces APIC not RE.

[Author]

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