Answer:
D. Debit to Dividends Payable.
Step-by-step explanation:
The first thing we have to keep in mind is that dividends are liabilities, that is, they represent cash outflows for the corporation. In the example, we can distinguish two moments: the declaration of a cash dividend and its effective distribution. Next, we will analyze them from an accounting point of view:
- On July 15, 2014, Benson Company declared a cash dividend. In accounting terms, on that day the “Retained Earnings” account was debited. Remember that this account is the one that records the profits that the company has obtained to date. So, what was done was to subtract that part that is to be distributed among stockholders. This amount is then transferred to a current liability account called “Dividends Payable”. In this case, money was added, therefore, the account was credited.
- On August 15 dividends were distributed. That day, the "Dividends Payable" account was debited, or, in other words, its money was discounted, because it is now in the hands of shareholders.