Declaration of dividend 1-increase equity 2- reduce working capital 3- increase working capital 4- increase assets

Answer option : >>>>>>>>>>>> Reduce working capital

[Result in immediate disbursement --Bank balance will reduce and will result in decrease in working Capital]

B)

the entry at declaration date 

Dr. Retained earnings , Cr. Dividends payable 

this means that equity will be decreased and current Liabilities will be increased . So working capital will be reduced.

At the time of declaration (Cash Dividend)

1.Increase Liabilities (lead to reduction in Working Capital)

2.Decrease Equity

At the time of declaration (Stock Dividend)

1.No net effect on Equity

2. No effect in Working Capital

 Note:

At time of declaration of dividend, no effect on Bank account

2 Is correct answer

In the declaration date

Dr / Retained Earning 

   Cr / dividends Payable

in the distribution date

Dr / dividends payable 

    Cr / Cash

Declaration dividend will reduce the working Capital

Working Capital= Current Assets - Current Liabilities.Decrease in working capital because it will increase the liability.  

Agrred with option -2

If equity will be decreas then working capital will be reducee.

2 - Reduce Working Capital As you have to recognize Dividend Payable which is current liability.

and increase in current liability will reduce Working Capital 

decrease or reduce working capital

Increase Assets of Company