Question

The board of directors of Nash's Trading Post, LLC declared a cash dividend of $1 per share on 30000 shares of common stock on July 15, 2017. The dividend is to be paid on August 15, 2017, to stockholders of record on July 31, 2017. The effects of the journal entry to record the declaration of the dividend on July 15, 2017, are to decrease stockholders’ equity and decrease assets. increase stockholders’ equity and decrease assets. increase stockholders’ equity and increase liabilities. decrease stockholders’ equity and increase liabilities.

Answer 1

At the time of declaration of dividend, the journal entry is debit to retained earnings and credit to dividend payable account respectively.

In the above question,

Dividend amount = 30,000 x $ 1

Dividend amoint = $ 30,000.

So journal entry will be debit to retained earnings by $ 30,000 and credit dividend payable account by $ 30,000 respectively. So stockholders equity is decreased by debiting while there is a liability account name dividend payable increases. So on July 15, the effect of this journal entry will be a decrease in stockholders equity and increase in liability.

Hence, option D is the correct answer.

SUMMARY:

On declaration date, retained earnings are debited which means that stockholders equity is decreased whereas dividend payable account is credited which means that a liability increases.

Hence, option D is the correct answer.