Question

Springer Co. was incorporated on January 1, 2019, at which time 500,000 shares of $1 par value common stock were authorized, and 210,000 of these shares were issued for $9 per share. Net income for the year ended December 31, 2019, was $1,900,000. Springer Co.’s board of directors declared dividends of $1.40 per share of common stock on December 31, 2019, payable on January 27, 2020. The entry to record the declaration of dividends on December 31, 2019 is:

Answer 1

Answer:

Dr Retained earnings  $294,000

Cr Dividends payable                   $294,000

Explanation:

The total amount of dividends declared on December 31 2019 is computed thus:

dividends declared=number of common stock issued*dividend per share

number of common issued is 210,000

dividend per share is $1.40

dividends declared=210,000*$1.40

                                 = $294,000.00  

The journal entries to the record the $294,000 is to debit retained earnings since dividend is a reduction to retained earnings which is a component of equity capital and a credit to dividends payable account.