Q32. Cash dividend
(1) On February 20, 20×1, Entity A declared a $2 per share cash dividend on 270,000 shares of common stock.
(2) The cash dividend was paid on March 10, 20×1.
Prepare journal entries to record these transactions.
A32. Cash dividend decreases retained earnings when it is declared.
(1) February 20, 20×1: to record the declaration of cash dividend
| Debit | Credit | |
| Retained earnings (or cash dividend) | 540,000 | |
| Dividends payable | 540,000 |
[Note]
1. Decrease in retained earnings (equity): debit
2. Increase in dividends payable (liability): credit
(2) March 10, 20×1: to record the payment of cash dividend
| Debit | Credit | |
| Dividends payable | 540,000 | |
| Cash | 54,000 |
[Note]
Decrease in dividends payable (liability): debit
[Exercise]
On January 25, 20×1, Entity B declared a $3 per share cash dividend on 160,000 shares of common stock. The cash dividend was paid on March 2, 20×1.
(1) January 25, 20×1: to record the declaration of cash dividend
| Debit | Credit | |
| Retained earnings (or cash dividend) | 480,000 | |
| Dividends payable | 48,000 |
[Note]
1. Decrease in retained earnings (equity): debit
2. Increase in dividends payable (liability): credit
3. Cash dividend decreases retained earnings when it is declared.
(2) March 2, 20×1: to record the payment of cash dividend
| Debit | Credit | |
| Dividends payable | 480,000 | |
| Cash | 48,000 |
[Note]
Decrease in dividends payable (liability): debit