Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

12. Stockholders' Equity

Dividends and Dividend Preferences

Financial Accounting

12. Stockholders' Equity

Dividends and Dividend Preferences

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Multiple Choice

Which of the following is the correct journal entry to record the declaration of a cash dividend of $4 per share for a corporation with 1,000 shares outstanding?

Debit Dividends Payable $4,000; Credit Cash $4,000

Debit Retained Earnings $1,000; Credit Dividends Payable $1,000

Debit Retained Earnings $4,000; Credit Dividends Payable $4,000

Debit Cash $4,000; Credit Retained Earnings $4,000

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Verified step by step guidance

Step 1: Understand the concept of declaring a cash dividend. When a corporation declares a cash dividend, it is committing to pay a certain amount to its shareholders. This creates a liability (Dividends Payable) and reduces Retained Earnings, which represents the accumulated profits of the company.

Step 2: Calculate the total dividend amount. Multiply the dividend per share ($4) by the number of shares outstanding (1,000). This gives the total dividend amount: $4 × 1,000 = $4,000.

Step 3: Determine the correct accounts to use. Declaring a dividend involves debiting Retained Earnings to reduce the company's equity and crediting Dividends Payable to record the liability.

Step 4: Write the journal entry. The journal entry for declaring the dividend is: Debit Retained Earnings $4,000; Credit Dividends Payable $4,000.

Step 5: Note that the other options provided are incorrect because they either involve the wrong accounts (e.g., Cash instead of Dividends Payable) or incorrect amounts (e.g., $1,000 instead of $4,000).