Use the work sheet for Finley Company to answer the questions that follow.
The entry to close Dividends would be
A) debit Retained Earnings, $3,000; credit Dividends, $3,000
B) debit Retained Earnings, $12,000; credit Dividends, $12,000
C) debit Dividends, $3,000; credit Retained Earnings, $3,000
D) debit Dividends, $12,000; credit Retained Earnings, $12,000

Question

Use the work sheet for Finley Company to answer the questions that follow. 
The entry to close Dividends would be
A) debit Retained Earnings, $3,000; credit Dividends, $3,000 
B) debit Retained Earnings, $12,000; credit Dividends, $12,000 
C) debit Dividends, $3,000; credit Retained Earnings, $3,000 
D) debit Dividends, $12,000; credit Retained Earnings, $12,000

Quizplus · Accepted Answer

When closing Dividends, we need to transfer the amount of dividends paid to the shareholders to Retained Earnings. Therefore, we will debit Retained Earnings for the amount of dividends paid, $3,000, and credit Dividends for the same amount. Choice B is incorrect because the amount of dividends paid was $3,000, not $12,000. Choice C is incorrect because we need to debit Retained Earnings and credit Dividends, not the other way around. Choice D is incorrect for the same reason as B.

Use the Work Sheet for Finley Company to Answer the Questions