Final answer:
The journal entry for the declaration of a dividend involves debiting Dividends and crediting Dividends Payable, reflecting the company's commitment to pay shareholders and transferring value from equity to a liability. Option 5 is correct.
Step-by-step explanation:
The journal entry to record the declaration of a dividend includes a debit to Dividends and a credit to Dividends Payable. When a corporation declares a dividend, it is essentially committing to pay a certain amount to its shareholders.
The process involves reducing the company's retained earnings, which are its accumulated profits, by debiting the Dividends account. This shows the distribution of earnings to shareholders. Concurrently, the company will credit Dividends Payable, demonstrating an obligation to pay the declared dividends in the future.
The entry effectively transfers the dividends' value from the retained earnings (equity) of the company to a liability account (Dividends Payable) until the payment is made. This commitment makes the credit to Dividends Payable a crucial component of recognizing dividend declarations in accounting.