Question

Lotoya Davis Corporation has 10 million shares o common stock issued and outstanding. On June 1, the board of directors voted an 80 cents per share cash dividend to stockholders of record as of June 14, payable June 30. Instructions Prepare the journal entry for each of the dates above assuming the dividend represents a distribution of earnings. How would the entry differ if the dividend were a liquidating dividend?

Answer 1

Answer:

June 1st:

Retained Earnings (Dr.)                 $8,000,000

Dividends Payable (Cr.)                $8,000,000

June 30th

Dividends Payable (Dr.)               $8,000,000

Cash (Cr.)                                      $8,000,000

These entries will remain same even in the case of liquidating dividend.

Explanation:

On June 1st the dividend is declared so the journal entry will be

Retained Earnings (Dr.)                 $8,000,000

Dividends Payable (Cr.)                $8,000,000

There will be no journal entry on June 14th.

On June 30th the dividend is paid:

Dividends Payable (Dr.)               $8,000,000

Cash (Cr.)                                      $8,000,000

The entry would not have differed if it was a liquidating dividend.