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Novak Corp. has 8,100 shares of common stock outstanding. It declares a $5 per share cash dividend on November 1 to stockholders of record on December 1. The dividend is paid on December 31. Prepare the entries on the appropriate dates to record the declaration and payment of the cash dividend.

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Answer:

November 1:

Dr retained earnings $40,500

Cr dividends payable              $40,500

Record date: no entries

December 31:

Dr dividends payable $40,500

Cr cash                                        $40,500

Explanation:

Based on the above question,the total amount of dividends declared is $40,500.00  (8,100*$5),as a result on the declaration date,retained earnings would be debited with $40,500 while dividends payable account is credited with same amount.

On payment date,the payable shown in the dividends payable account must be reversed by a debit and a credit posted to cash account since payment of dividends is an outflow of cash from the business

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