Question

Fowler Co.'s balance sheet showed the following at December 31, 2021: A cash dividend is declared on December 31, 2021, and is payable on January 20, 2022, to shareholders of record on January 10, 2022.

Answer 1

Answer:

The detailed answer is under the explanation tab:

Explanation:

I assume the complete question is as follows:

(1.) Prepare all appropriate journal entries, assuming a cash dividend in the amount of $1.00 per share.

(2.) Prepare all appropriate journal entries, assuming a cash dividend in the amount of $5.00 per share.

I will base my solution on the above two requirements:

Task 1:

Prepare all appropriate journal entries, assuming a cash dividend in the amount of $1.00 per share.

Solution:

Journal entry 1:

Debit: Dec 31st Profit & loss Appropriation/ reserves Account Dr $1 / share

Credit: Proposed Dividend $ 1/ share

Journal entry 2:

Debit: 20th Jan Proposed dividend Account Dr $ 1/ share

Credit: Bank $ 1/ share

Task 2:

Prepare all appropriate journal entries, assuming a cash dividend in the amount of $5.00 per share.

Solution:

Journal entry 1:

Debit: Dec 31st Profit & loss Appropriation/ reserves Account Dr $5 / share

Credit: Proposed Dividend $ 5/ share

Journal entry 2:

Debit: 20th Jan Proposed dividend Account Dr $ 5/ share

Credit: Bank $ 5/ share

Key points:

• Dividend is the source of income of shareholders when they invest money in shares for gaining the dividend.
• On the other hand, when company declares the dividend for shareholder, it will be the deduction of its net profit.
• For transferring dividend out of net profit, we make the profit and loss appropriation account.

Journal entries for the dividends:

Following are the journal entries of dividends

1. When dividend is proposed by company out of net profit.

Debit: Profit and Loss Appropriation Account

Credit: Proposed Dividend Account  

2. When Proposed dividend is paid by Company

Debit: Proposed Dividend Account

Credit: Bank Account

3. When Dividend is Declared Out of Retained Earning

Debit: Retained Earning Account

Credit: Dividend Account

4. When Such Dividend is Paid

Debit: Dividend Account

Credit: Bank Account