Question

Woodland Company declared a cash dividend of $2.00 per share on 50,000 shares of common stock on July 15. The dividend is to be paid one month later on August 15 to stockholders of record on July 31. The correct entry to be recorded on the date of declaration of July 15 will include a:

Answer 1

Answer:

Entry's

                                                          Debit                             Credit

Retained earnings                              100,000

Dividend payable                                                                    100,000

Explanation:

Because the dividend is declared in July but not paid in July the entry in July will be of dividend payable and not cash, dividend payable will be credited as it is a liability which is increasing and we credit when a liability increases. Secondly we will debit retained earnings because the dividends will be paid from the retained earnings and whenever retained earnings decrease we debit them. We calculate the amount by multiplying the number of shares by the dividend per share (50,000*2) = 100,000

Answer 2

The correct entry that would be recorded on the date of declaration is:

                                                              Debit                             Credit

Retained earnings                             100,000

Dividend payable                                                                    100,000

What is the correct entry on the date of declaration?

Whe dividends are payed, retained earnings decline. Retained earnings are the earnings left after all debt obligations have been paid. Whe dividends are payed, dividend payable account is credited.

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