Question

The board of directors of Yancey Company declared a cash dividend of $1.50 per share on 42,000 shares of common stock on July 15, 2014. The dividend is to be paid on August 15, 2014, to stockholders of record on July 31, 2014. The effects of the journal entry to record the declaration of the dividend on July 15, 2014, are toa. decrease stockholders' equity and increase liabilities.b. decrease stockholders' equity and decrease assets.c. increase stockholders' equity and increase liabilities.d. increase stockholders' equity and decrease assets.

Answer 1

a. decrease stockholders' equity and increase liabilities

Step-by-step explanation:

In the given question, the cash dividend is declared which is equal to

= Per-share × number of shares

= $1.50 × 42,000 shares

= $63,000

The journal entry is shown below:

Retained earning A/c Dr

To Dividend payable

(Being cash dividend declared)

When the dividend is declared, the dividend amount should be deducted from the retained earning account.

And, since the dividend is declared which increase the balance of dividend

Moreover, the dividend payable and the retained earning account have a credit balance. The increase in dividend payable account would have credit balance whereas the decrease in retained earning account has a debit balance.