All of the following would result in an increase in stockholders' equity except:

• A. Receiving additional paid-in capital
• B. Earning net income
• C. Issuance of common stock
• D. Declaring and paying dividends

Answer: (D)

Verified step by step guidance

1. Understand the concept of stockholders' equity: Stockholders' equity represents the owners' claim to the assets of a corporation after all liabilities have been deducted. It is affected by transactions that increase or decrease the company's net assets.
2. Analyze the impact of receiving additional paid-in capital: Additional paid-in capital is the amount received from shareholders above the par value of the stock. This increases stockholders' equity because it represents an inflow of funds from investors.
3. Evaluate the effect of earning net income: Net income increases retained earnings, which is a component of stockholders' equity. Therefore, earning net income results in an increase in stockholders' equity.
4. Consider the issuance of common stock: Issuing common stock brings in cash or other assets from investors, increasing stockholders' equity through the common stock and additional paid-in capital accounts.
5. Understand the impact of declaring and paying dividends: Declaring and paying dividends reduces retained earnings, which is a component of stockholders' equity. Therefore, this action decreases stockholders' equity rather than increasing it.