Question

The board of directors of Capstone Inc. declared a $0.60 per share cash dividend on its $1 par common stock. On the date of declaration, there were 50,000 shares authorized, 20,000 shares issued, and 5,000 shares held as treasury stock. What is the entry for the dividend declaration? 1.Retained earnings 9,000 Cash dividends payable 9,000 2.Retained earnings 9,000 Cash 9,000 3.Retained earnings 10,000 Cash dividends payable 10,0004. Retained earnings 10,000 Cash 10,000

Answer 1

Dr Retained earnings $9,000

Cr Dividends payable $9,000

Step-by-step explanation:

The number of shares eligible for dividends is the issued common stock minus treasury stock, that is 15,000 shares(20,000-5,000),as a result ,dividends of $9000 (15,000*$0.6) were declared.

The appropriate entries on the declaration date is to debit retained earnings with $9,000 and credit dividends payable account with $9000

Upon payment, the dividends payable would be debited and cash account credited.