B is corrent. Lind Corporation makes the following entry to record the dividend on the declaration date (March 10, year 2):
| Dividends declared | 50,000 | |
| Dividends payable | | 50,000 |
No entry is made on the date of record (March 25, year 2). When the dividends are paid on April 5, year 2, Lind makes the following entry:| Dividends payable | 50,000 | |
| Cash | | 50,000 |
Working capital equals current assets minus current liabilities. On March 10, current liabilities (dividends payable) increased by $50,000, thereby reducing working capital by $50,000. On April 5, both a current asset (cash) and a current liability are decreased by the same amount ($50,000), and this therefore has no effect on total working capital.
A is incorrect. Working capital equals current assets less current liabilities. Any transactions which affect either current assets or current liabilities, but not both, will affect working capital. If a transaction affects both current assets and current liabilities, the effects will offset and there will be no change in working capital.
C is incorrect. Working capital equals current assets less current liabilities. Any transactions which affect either current assets or current liabilities, but not both, will affect working capital. If a transaction affects both current assets and current liabilities, the effects will offset and there will be no change in working capital.
D is incorrect. Working capital equals current assets less current liabilities. Any transactions which affect either current assets or current liabilities, but not both, will affect working capital. If a transaction affects both current assets and current liabilities, the effects will offset and there will be no change in working capital.
