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QUESTION 13 A company declared a cash dividend on its common stock on December 15 of...

QUESTION 13

  1. A company declared a cash dividend on its common stock on December 15 of the previous year, payable on January 12 of the current year. How would this dividend affect stockholders' equity on the following dates?

    December 15,
    previous year

    December 31,
    previous year

    January 12,
    current year

    Decrease,   No effect ,   Decrease

    Decrease,   No effect,   No effect

    No effect,   Decrease,   No effect

    No effect,   No effect,   Decrease
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Answer #1

When the dividend is declared i.e. on December 15, a dividend payable entry would be recorded by debited retained earnings and crediting dividends payable. Impact: Stockholders' equity decreases as retained earnings is debited

No entry is required as on December 31. Impact: No effect on Stockholders' equity

At the time of payment of dividend on January 12, dividend payable would be debited and cash would be credited for payment of dividend. Impact: No effect on Stockholders' equity as dividends payable is liability account and cash is an asset account.

Hence, the answer is option second - Decrease, No effect, No effect

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