Question

When the board of directors declares and pays a $500 dividend, which of the following would be included in the resulting journal entry?

O Dr. Dividends Declared, Cr.Cash
O Dr. Cash, Cr. Retained Earnings
O Dr. Retained Earnings, Cr. Dividends declared
O Dr. Cash, Cr. Dividends payable

Answer 1

The correct journal entry for declaring and paying a $500 dividend includes debiting Dividends Declared and crediting Dividends Payable upon declaration. Upon payment, Dividends Payable is debited and Cash is credited, reflecting the decrease in assets and equity.

Step-by-step explanation:

When a board of directors declares and pays a dividend, the correct journal entry to record the transaction would reflect a decrease in the company's assets and a corresponding decrease in its equity. The entry to record the declaration of a $500 dividend would be:

• Dr. Dividends Declared
• Cr. Dividends Payable

When the dividend is actually paid out to shareholders, the journal entry would be:

• Dr. Dividends Payable
• Cr. Cash

This two-step process ensures that the declaration of the dividend is recorded separately from the actual payment, which might occur at a later date. It is important to note that dividends impact the equity section of the balance sheet by reducing Retained Earnings, but they do not affect the company's net income.

Answer 2

The correct journal entry for declaring and paying a $500 dividend is to debit Dividends Declared and credit Cash.

Step-by-step explanation:

When the board of directors declares and pays a $500 dividend, the correct journal entry that would be included is Dr. Dividends Declared, Cr. Cash. This is because when a dividend is declared, the company is committing to paying out cash to its shareholders, which is reflected in the Dividends Declared account being debited (increased). Subsequently, when the cash is actually paid out, the Cash account is credited (decreased) to reflect the outflow of funds.