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 accounts is debited in the journal entry to record the declaration of a cash dividend?

Retained Earnings

Dividends Payable

Cash

Common Stock

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Verified step by step guidance

Understand the concept of declaring a cash dividend: When a company declares a cash dividend, it is committing to distribute a portion of its retained earnings to shareholders. This declaration creates a liability for the company, as it owes the dividend payment to shareholders.

Identify the accounts involved: The declaration of a cash dividend affects two accounts: Retained Earnings and Dividends Payable. Retained Earnings is reduced because the company is using its accumulated profits to pay the dividend. Dividends Payable is increased because the company now has a liability to pay the declared dividend.

Determine which account is debited: In accounting, a debit entry is used to decrease equity accounts like Retained Earnings. Therefore, Retained Earnings is debited to reflect the reduction in the company's equity due to the dividend declaration.

Determine which account is credited: A credit entry is used to increase liability accounts like Dividends Payable. Therefore, Dividends Payable is credited to record the company's obligation to pay the declared dividend.

Summarize the journal entry: The journal entry to record the declaration of a cash dividend is as follows: Debit Retained Earnings (to decrease equity) and Credit Dividends Payable (to increase liabilities).