On 1 June 2022, Linh Do Accounting Company declared a $50 000 cash dividend to be distributed to its ordinary shareholders of record on June 15, 2022. The dividend will be paid on 15 July 2022. The required journal entry on 1 June includes a:

Question

BlackTom AI · Accepted Answer

We start by identifying what happens on the declaration date of a cash dividend. At declaration, a company commits to distributing cash to shareholders, which reduces retained earnings and creates a liability to pay the dividend.
Option 1: '$50 000 credit to cash' would prematurely show cash leaving the company. The cash payment occurs later on the payment date, not at declaration, so this entry is incorrect.
Option 2: '$50 000 credit to ordinary share capital' would imply an impact on share capital, which does not change when declaring a dividend. Dividends affect retained earnings and a liability, not share capital, so this is incorrect.
Option 3: '$50 000 debit to retained earnings' correctly reflects the reduction of retained earnings to recognize the distribution of profits to shareholders. It also creates a liability (Dividends Payable) to be settled when the cash is paid. This aligns with standard accounting treatment for cash dividends on declaration date.
Option 4: '$50 000 debit to dividends payable' would decrease a liability that has not yet been established. Since dividends payable is the liability created by the declaration, debiting it would undo the liability rather than recording the declaration itself, making this option incorrect.
In summary, the only entry that matches the bookkeeping event of declaring a cash dividend is a debit to retained earnings for the amount of the dividend, paired with a credit to Dividends Payable (which is not shown as a separate option but explains the accompanying liability). The other options misstate cash flow timing, affect wrong accounts, or invert the nature of the liability.

BACC012 Online Quiz- Week 8 | LA008

On 1 June 2022, Linh Do Accounting Company declared a $50 000 cash dividend to be distributed to its ordinary shareholders of record on June 15, 2022. The dividend will be paid on 15 July 2022. The required journal entry on 1 June includes a:

View Explanation

Log in for full answers

Similar Questions

Journal entries associated with a cash dividend are usually made on which of the following dates?

Declared and paid $15,000 cash dividends to shareholders.

When a company declares a cash dividend, the recording will be Debit [ Select ] Retained Earnings Dividend Expense Profit and Loss Dividend Payable Cash and Credit [ Select ] Retained Earnings Account Payable Dividend Expense Dividend Payable Cash ..

On 15 July 2023, Linh Do Accounting Firm paid a cash dividend that had been declared prior to the end of its June 30, 2023 financial year. The entry to pay the dividends includes a debit to:

When a company declares a cash dividend, the recording will be Debit Retained Earnings and Credit Dividend Payable ..

When a company declares a cash dividend, the recording will be Debit [ Select ] Dividend Expense Retained Earnings Dividend Payable Cash Profit and Loss and Credit [ Select ] Account Payable Retained Earnings Cash Dividend Expense Dividend Payable ..

The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 60,000 shares were originally issued and 10,000 were subsequently reacquired. What is the amount of cash dividends to be paid if a $2-per-share dividend is declared?

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler