Relationship of Working Capital & Cash Dividends?

Question

Identify the effect of each of the following transactions on Working Capital (increase, decrease, or no effect)

A - To Record the Declaration of a Cash Dividend
B - To Record the Payment of a previously declared and recorded cash dividend.
C - To close the cash dividends declared account at the end of the accounting period.

Answer 1

A Decrease
B Decrease
C no effect

Answer 2

Working capital is current assets minus current liabilities. Dividend is paid from Net Income. So there is no effect both are in different time frames and in different accounts. One is a balance sheet item and the other and income statement item. One happens at the end of the year and the other is requirement throughout the next financial year. So no effect.