Question

On February 1, 2009, Despot declared cash dividends of $12 million to be paid in April...

On February 1, 2009, Despot declared cash dividends of $12 million to be paid in April of that year. On April 1, Despot paid the cash dividend. What effect did the April 1 transaction have on Despot's accounts?

a. Decreased assets and liabilities

b. No journal entry is needed

c. Decreased assets and shareholders' equity

d. Increased liabilities and decreased shareholders' equity

Business   Accounting   
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Homework Answers

Answer #1

Answer: Option A Decrease in Asssets and Liabilities

Explanation:

Journal Entries for declaration and payment of dividend

Transaction General Journal Debit Credit
Feb-01 Retained Earnings $12,000,000
           Dividends Payable $12,000,000
(On Declaration of Dividends)
Date General Journal Debit Credit
Apr -01 Dividends Payable $12,000,000
          Cash $12,000,000
(on the payment of Dividend)

Note: On Payment of Dividends Liability of Dividend payable is Decreased and the Cash balance(asset) is also decreased by $12 Million.

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