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On July 31, a company declared a cash dividend of $0.25 per common share to the...

On July 31, a company declared a cash dividend of $0.25 per common share to the shareholders of record on August 15. The cash dividend will be paid on August 25. This company has 500,000 shares authorized and 100,000 shares outstanding. Prepare the journal entries required on July 31, August 15 and August 25 (2.5 Marks). On July 31, a company declared a cash dividend of $0.25 per common share to the shareholders of record on August 15. The cash dividend will be paid on August 25. This company has 500,000 shares authorized and 100,000 shares outstanding. Prepare the journal entries required on July 31, August 15 and August 25 (2.5 Marks).

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Answer #1

July 31

Retained earnings Dr. $25000

Cash dividend payable Cr. $25000

(cash dividend declared)

August 15 No entry

August 25

Cash dividend payable   Dr. $25000

Cash dividend Cr $25000

(Cash dividend paid)

Net impact on company’s total assets, total liabilities and total equity:

Current asset will decrease by $25000 because of the payment of cash thereby reducing the total asset of the company by $25000

Equity will decrease by $25000 because of the reduction of retained earnings by $25000

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