Question

When dividends are declared in one fiscal year and paid in the next fiscal year, the liability for the dividend should be recorded as of:

A) Declaration date
B) Payment date
C) Record date
D) Fiscal year-end

Answer 1

The liability for a dividend is recorded on the declaration date because it creates a legal obligation for the company to pay its shareholders.

Step-by-step explanation:

The liability for a dividend should be recorded as of the declaration date. When dividends are declared in one fiscal year and paid in the next fiscal year, the company must recognize the dividend as a liability on its balance sheet immediately upon declaration. This is because the declaration of the dividend creates a formal, legal obligation for the company to pay the shareholders, and thus a liability must be recognized at that time.