Question

"Sunland Corporation has 73,000 shares of common stock outstanding. On November 1, it declares a $1 per share cash dividend to stockholders of record on December 1. The dividend is paid on December 31. Prepare the journal entries on the appropriate dates to record the declaration and payment of the cash dividend.

Record the journal entry on November 1 to reflect the declaration of the cash dividend.
Record the journal entry on December 1 to account for stockholders of record.
Record the journal entry on December 31 when the cash dividend is paid."

Answer 1

Journal entries for a dividend declaration include debiting Retained Earnings and crediting Dividends Payable. On the dividend payment date, Dividends Payable is debited, and Cash is credited, reflecting the payment of the dividend to shareholders. No journal entry is needed on the record date.

Step-by-step explanation:

Journal Entries for Dividend Declaration and Payment

The student asked about preparing journal entries for the declaration and payment of a cash dividend by Sunland Corporation. Sunland has 73,000 shares of common stock, and it declares a $1 per share cash dividend on November 1, with a record date of December 1 and a payment date of December 31.

On November 1, when the dividend is declared, the entry is:

Dr. Retained Earnings 73,000

Cr. Dividends Payable 73,000

This entry reflects a decrease in retained earnings and an increase in liabilities, acknowledging the company's commitment to pay the dividend.

No entry is required on December 1 as this is the date stockholders of record are identified, and there are no actual changes in the accounts on this date.

On December 31, when the dividend is paid, the entry is:

Dr. Dividends Payable 73,000

Cr. Cash 73,000

This finalizes the transaction, decreasing the liability and the cash account to reflect the payment of the dividend to the shareholders.