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On November 13, the Board of Directors of Master of Coin Rare Coin Collectors, Inc. declares...

On November 13, the Board of Directors of Master of Coin Rare Coin Collectors, Inc. declares a cash dividend that will be paid on November 27. Which of the following is the correct journal entry that the company should record on November 13?


Debit Cash Dividends and credit Dividends Payable.


Debit Dividends Payable and credit Cash.


Debit Dividends Payable and credit Cash Dividends.


No journal entry is recorded on the declaration date.
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Answer #1

The journal entry to record the declaration of the cash dividend is :

Debit to Retained Earnings (a stockholders' equity account) and

Credit to Cash Dividends Payable.

Another acceptable method of recording declaration of cash dividend is:

Debit a Dividends account instead of Retained Earnings i.e.,

Debit to Dividends Account and

Credit to Cash Dividends Payable.

The Dividends account is then closed to Retained Earnings  at the end of the fiscal year.

In the light of the above, The Correct answer for the given question is "Debit Cash Dividends and credit Dividends Payable"

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