Question

The board of directors of Capstone Inc. declared a $0.40 per share cash dividend on its $3 par common stock. On the date of declaration, there were 51,000 shares authorized, 23,000 shares issued, and 5,000 shares held as treasury stock. What is the entry when the dividends are declared?

Answer 1

Answer: please refer to the explanation section

Step-by-step explanation:

Dr Retain earnings 9200

Cr Dividends Payable (liability) 9200

When shares are declared, the company creates an obligation to pay dividends. Declaring Dividends creates a Liability. Retained earnings account decreases ( Debited ) and Liabilities increase, we credit dividends payable.

Shares held as treasury stock do not receive dividends,

Dividends payable = 23000 shares x 0.40 = 9200

Answer 2

$7,200

Step-by-step explanation:

To solve this problem, we use the calculation of dividends formula.

This is represented as follows:

Dividends = (Number of shares issued - Treasury stock held) * dividend per share

According to the parameters in the question, number of shares issued = 23,000

Treasury stock held = 5,000

Dividend per share = $0.40

Substituting these values, we have:

Dividends = (23,000-5,000) * $0.4

Dividends = 18,000 * $0.4 = $7,200

The entry when the dividend is declared is $7,200