Question

Novak Corp. has 8,100 shares of common stock outstanding. It declares a $5 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.

Answer 1

Novak Corp.'s declaration of a cash dividend results in a debit to the Dividends account and credit to the Dividends Payable account. On payment of the dividends, Dividends Payable is debited, and Cash is credited. The total dividend payout is the number of shares outstanding multiplied by the dividend per share.

Step-by-step explanation:

When Novak Corp. declares a cash dividend of $5 per share, the company is communicating a return to its shareholders. The total dividend payout would be the number of shares outstanding multiplied by the dividend per share. In this case, with 8,100 shares outstanding, Novak Corp. would be declaring a total dividend payout of $40,500 (8,100 shares * $5 per share).

The accounting entries on the declaration date (November 1) would be:

• Debit – Dividends for $40,500
• Credit – Dividends Payable for $40,500

This entry reflects the company's commitment to pay the dividends. No cash has been paid out yet; the Dividends account reflects an expense, reducing retained earnings, while the Dividends Payable account represents a liability on the balance sheet.

On the payment date (December 31), the entry to record the payment would be:

• Debit – Dividends Payable for $40,500
• Credit – Cash for $40,500

This entry reduces the company's liabilities and cash balance, reflecting the actual distribution of dividends to stockholders.

Answer 2

November 1:

Dr retained earnings $40,500

Cr dividends payable $40,500

Record date: no entries

December 31:

Dr dividends payable $40,500

Cr cash $40,500

Step-by-step explanation:

Based on the above question,the total amount of dividends declared is $40,500.00 (8,100*$5),as a result on the declaration date,retained earnings would be debited with $40,500 while dividends payable account is credited with same amount.

On payment date,the payable shown in the dividends payable account must be reversed by a debit and a credit posted to cash account since payment of dividends is an outflow of cash from the business