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

Answer:

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

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