Dividends Declared (a sub account under Retained Earnings) will get cleared as part of year-end when closing entries are made. Liquidating dividends is not a common practice because when the company declares and payout such dividends, the balance of paid-in capital will be reduced. Here’s an example of declaring a dividend with Your Co.: The Board of Directors for Your Co. declares a cash dividend on March 1. Dr Retained Earnings. Credit Bank/Amount due to/(from) shareholder . When dividends are declared by a corporation’s board of directors, a journal entry is made on the declaration date to debit Retained Earnings and credit the current liability Dividends Payable. You cannot declare or pay dividends if you have negative retained earnings. A32. Cash dividend (1) On February 20, 20×1, Entity A declared a $2 per share cash dividend on 270,000 shares of common stock. The “Stock Dividends Distributable” account is credited by the same amount. Shareholders will be paid on April 10. The correct journal entry to record the declaration is: a. DR Capital stock 500 and CR Cash 500 Dividends. you need to create a separate account to record the dividend payment. Cash dividend decreases retained earnings when it is declared. The entry to record the payment of dividends is a debit to Dividends Payable and a … Likewise, the journal entry for the liquidating dividend is a bit different from the cash dividend. Q32. You may name the account " Dividend declared and paid", account type ' Equity' , and detail type' owner's equity' Your journal entries shall be: Debit Dividend declared and paid. The preferred stock journal entries below act as a quick reference, and set out the most commonly encountered situations when dealing with the double entry posting of preferred stock transactions.. The second entry occurs on the date of the payment to the stockholders. Prepare journal entries to record these transactions. When this occurs, a journal entry must be recorded. These two lines make the balance journal entry. On that date the current liability account Dividends Payable is debited and the asset account Cash is credited. It is the declaration of cash dividends that reduces Retained Earnings. Related Questions. The date of record will be March 15. This is why, in many jurisdictions, this practice is not allowed. The dividend total will be $1-per-share or $100,000. Record the journal entry for the payment of the dividends. The “Common Stock” account is … A cash dividend of $500 was declared and paid to stockholders. In each case the term deposit journal entries show the debit and credit account together with a brief narrative. The journal entries to be made on the payment date are as follows: The “Stock Dividends Distributable” account is debited by the total par value of new stock. Cr Dividends Payable Hope above helps! It is from this date that the entity has an obligation to pay the dividend. (2) The cash dividend was paid on March 10, 20×1. 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