Cash dividend



Q32. Cash dividend
(1) On February 20, 20×1, Entity A declared a $2 per share cash dividend on 270,000 shares of common stock.
(2) The cash dividend was paid on March 10, 20×1.
Prepare journal entries to record these transactions.

A32. Cash dividend decreases retained earnings when it is declared.

(1) February 20, 20×1: to record the declaration of cash dividend

  Debit Credit
Retained earnings (or cash dividend) 540,000  
     Dividends payable   540,000

[Note]
1. Decrease in retained earnings (equity): debit
2. Increase in dividends payable (liability): credit

(2) March 10, 20×1: to record the payment of cash dividend

  Debit Credit
Dividends payable 540,000  
     Cash   54,000

[Note]
Decrease in dividends payable (liability): debit

[Exercise]
On January 25, 20×1, Entity B declared a $3 per share cash dividend on 160,000 shares of common stock. The cash dividend was paid on March 2, 20×1.

(1) January 25, 20×1: to record the declaration of cash dividend

  Debit Credit
Retained earnings (or cash dividend) 480,000  
     Dividends payable   48,000

[Note]
1. Decrease in retained earnings (equity): debit
2. Increase in dividends payable (liability): credit
3. Cash dividend decreases retained earnings when it is declared.

(2) March 2, 20×1: to record the payment of cash dividend

  Debit Credit
Dividends payable 480,000  
     Cash   48,000

[Note]
Decrease in dividends payable (liability): debit

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