How do liabilities and stockholders’ equity differ? How are they similar? B. Explain how retained earnings...

How do liabilities and stockholders’ equity differ? How are they similar? B. Explain how retained earnings and dividends are related? How do cash dividends affect the financial statements? C. How a company can reduce its break-even point?

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Part-A)

How do liabilities and stockholders’ equity differ?

Ans:The important difference between stockholder's equity and liabilities is that stockholder equity is money owed to shareholders within the company while liabilities are owed to external parties. It is also important to note that in bankruptcy law, liabilities take precedence over stockholders' equity, meaning that a firm must pay its debts before its shareholders in the event of a bankruptcy.

How do liabilities and stockholders’ equity similar?

Stockholder's equity and liabilities are both monies that a firm owes.Stockholder's equity is similar to a liability in that it is an amount of money that is earmarked to be paid out (to shareholders and creditors, respectively). On a balance sheet, stockholder's equity and liabilities are placed in the right hand column while assets are placed in the left hand column. The total of a firm's liabilities and stockholder equity must always be equal to its assets.

Part-B)

Explain how retained earnings and dividends are related?

Generally dividend is paid out of Retained Earnings of a Company.Retained earnings, an equity account found on the company's balance sheet, is reduced at the time the dividends are declared.

How do cash dividends affect the financial statements?

Cash dividends are the payments a corporation makes to its shareholders as a return of the company's profits.Cash Dividend reduce the retained earnings balance on the liability side and the cash balance on the asset side.

Part-C)

How a company can reduce its break-even point?

Company can reduce is break even point by:

1) reducing the amount of fixed costs,

2) reducing the variable costs per unit—thereby increasing the unit's contribution margin,

3) improving the sales mix by selling a greater proportion of the products having larger contribution margins, and

4) increasing selling prices so long as the number of units sold will not decline significantly.

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