Divine Apparel has 2,000 shares of common stock outstanding. On October 1, the company declares a $0.25 per share dividend to stockholders of record on October 15. The dividend is paid on October 31. Record all transactions on the appropriate dates for cash dividends. a. Record the declaration of cash dividends.
b. Record the entry on date of record.
c. Record the payment of cash dividends

Answer and Explanation:

The journal entries are as follows;

On October 1  

Dividend Declared Dr $500        (2,000 shares × $0.25)  

        To Dividend payable $500

(To record the cash dividend declaration)

Here the dividend declared is debited as it reduced the shareholder equity and credited the dividend payable as it increased the liability

On October 15

No journal entry is required

On October 31

Dividend payable Dr  $500

       To Cash   $500

(to record the cash dividend payment)

The dividend payable is debited as it decreased the liabilities and credited the cash as it also decreased the assets

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