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

Retained Earnings

Financial Accounting

12. Stockholders' Equity

Retained Earnings

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

When closing dividends of \$530 to retained earnings at the end of the accounting period, which of the following journal entries is correct?

Debit Retained Earnings \$530; Credit Cash \$530

Debit Dividends \$530; Credit Retained Earnings \$530

Debit Retained Earnings \$530; Credit Dividends \$530

Debit Dividends \$530; Credit Cash \$530

Previous problemNext problem

Verified step by step guidance

Understand the concept of closing entries: Closing entries are made at the end of an accounting period to transfer balances from temporary accounts (like revenues, expenses, and dividends) to permanent accounts (like retained earnings). Dividends are closed to retained earnings because they reduce the retained earnings balance.

Identify the accounts involved: Dividends are a temporary account that needs to be closed, and retained earnings is the permanent account that will absorb the balance of dividends.

Determine the correct journal entry: To close dividends, you need to debit Retained Earnings (to decrease it) and credit Dividends (to zero out its balance). This reflects the reduction in retained earnings due to dividends paid.

Analyze why other options are incorrect: For example, 'Debit Dividends; Credit Retained Earnings' is incorrect because it reverses the proper closing entry. Similarly, 'Debit Retained Earnings; Credit Cash' is incorrect because cash is not involved in closing entries.

Write the correct journal entry: The correct journal entry is 'Debit Retained Earnings $530; Credit Dividends $530'. This ensures the dividends account is closed and the retained earnings account is adjusted accordingly.