Final Exam Quiz xG On December 15, 20x2 x C O ezto mheducat tpx E connect MGA co

Question

Final Exam Quiz xG On December 15, 20x2 x C O ezto mheducat tpx E connect MGA courses: MGAB02 LE Final Exam Quiz Question 4 (of 36) 4. On December 15, 20x2, the board of directors of Home Corporation declared a cesh dividend, payable on Jenuary & 20x3, of 12 per shere on the 100,000 comon accounting period ends December 31. Because of this action, on December 15.20X2. Home Corporation should do which of the foiloiwing? retained earnings $200.000 and increase contributed cepital $200.000 O Make no journal entry becauce the event had no efflect on the corporation's fnencial position ureil 20xa O Decrease retained earnings $200 000 and increese iabilities $200.000 O Decrease cash $200.000 and decreese retained earnings $200,000 Fa. FVO FS

Explanation / Answer

Please make a note that for a company, as and when a dividend is declared, it becomes a liability in the books of the company.

In the given case, Company declared the dividend on 15 dec 2002 that it will be paid in the next year on Jan 8, which means that for the year ended Dec 2002, it should be shown as Dividend payable in the liability side of the balance sheet. Further, the divideds are paid out of profits of any company. which means that after declaring dividend the profits will come down. thus retained earnings will be debited. The entry will be -

Retained Earnings A/c Dr.        200,000       ($2 per share x 100,000 shares)

               To Dividend payable A/c              200,000

(Being divided declared)

Hence, the option C is correct.

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