Question

On December 15, 2018, the board of directors of Lomas Corporation declared a cash dividend, payable on January 8, 2019 of $0.80 per share on the 2,000,000 common shares outstanding. The accounting period ends December 31. Because of this action, on December 15, 2018, Lomas Corporation should:

Answer 1

Answer: decrease retained earnings $1.60 million and increase liabilities by $1.60 million.

Explanation:

The dividend on common shares will be:

=2,000,000 × $0.80

=$1,600,000

Then, the journal entry will be:

Debit: Retained earnings $1.6 million

Credit: Dividend payable $1.6 million

The answer will be to decrease retained earnings $1.60 million and then increase liabilities by $1.60 million.