Final answer:
A firm issuing a $0.70 per share dividend on 450,000 shares results in a total payout of $315,000. The journal entry requires debiting Retained Earnings and crediting Dividends Payable on the declaration date, followed by debiting Dividends Payable and crediting Cash on the payment date to record the transaction.
Step-by-step explanation:
When a company decides to pay out dividends, the process involves declaring the dividend and then recording it in the financial statements. Given the scenario of having 450,000 shares with a cash dividend of $0.70 per share, the total dividend payout is calculated by multiplying the number of shares by the dividend per share. Therefore, 450,000 shares × $0.70/share results in a total dividend payment of $315,000.
To record this transaction, two entries are required in the journal. The first entry is on the declaration date, where a debit to Retained Earnings is made since this is the source of the dividend payment, and a credit to Dividends Payable is recorded, reflecting the company's obligation to pay the shareholders. The second entry is on the payment date, where a debit to Dividends Payable is made, clearing the liability, and a credit to Cash is recorded, showing the actual payment made to shareholders.