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On July 15, 2012, the board of directors of George Easton Limited declared a cash dividend of $0.50 per share on 84,000 common shares. The dividend is to be paid on August 15, 2012, to shareholders of record on July 31, 2012.
-The effects of the journal entry to record the declaration of the dividend on July 15, 2012, are to
A)decrease shareholders' equity and increase liabilities.
B)decrease shareholders' equity and decrease assets.
C)increase shareholders' equity and increase liabilities.
D)increase shareholders' equity and decrease assets.

Question

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On July 15, 2012, the board of directors of George Easton Limited declared a cash dividend of $0.50 per share on 84,000 common shares. The dividend is to be paid on August 15, 2012, to shareholders of record on July 31, 2012.
-The effects of the journal entry to record the declaration of the dividend on July 15, 2012, are to
A)decrease shareholders' equity and increase liabilities.
B)decrease shareholders' equity and decrease assets.
C)increase shareholders' equity and increase liabilities.
D)increase shareholders' equity and decrease assets.

Quizplus · Accepted Answer

When a dividend is declared, it decreases retained earnings (a component of shareholders' equity) and increases dividends payable (a liability).

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