Question

Whispering Winds Corp. has 8,700 shares of common stock outstanding. It declares a $4 per share cash dividend on November 1 to stockholders of record on December 1. The dividend is paid on December 31. Prepare the entries on the appropriate dates to record the declaration and payment of the cash dividend. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Answer 1

On declaration date:

Dr retained earnings $ 34,800

Cr dividends payable $ 34,800

On payment date:

Dr dividends payable $34,800

Cr cash $34,800

Step-by-step explanation:

First and foremost,the total dividends declared is $34,800 (8,700*$4)

However,upon declaration of the dividends,the retained earnings where the dividends are funded from,would be debited with $ 34,800 while the dividends payable account would be credited with same amount as an outstanding obligation owed to shareholders.

On payment date,the dividends payable account would be debited and cash account credited as appropriate in order to reflect the outflow of cash from the business.