Question

Bramble Inc. declared a cash dividend of $1.55 per share on its 4 million outstanding shares. The dividend was declared on August 1, payable on September 9 to all stockholders of record on August 15.

Required:

Prepare the journal entries necessary on those three dates.

Answer 1

See explanation section

Step-by-step explanation:

Dividend declaration date = August 1. The journal entry is as follows:

Debit Retained Earnings $6,200,000

Credit Dividends payable $6,200,000

Calculation: $1.55 per share × 4,000,000 outstanding shares = $6,200,000

As the dividend is declared, there is no cash paid. So, cash is not either debit or credit. As the company does not pay the dividends, a liability account will open.

Dividend record date = August 15. There will be no journal entry required.

Dividend payment date = September 9. The journal entry is as follows:

Debit Dividends payable $6,200,000

Credit Cash $6,200,000

As soon as the cash dividend is paid, cash becomes credit because of the payment of dividends. The liability decreases after paying the stockholders'.