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7 January, 11:54

Bramble Inc. declared a cash dividend of $1.55 per share on its 4 million outstanding shares. The dividend was declared on August 1, payable on September 9 to all stockholders of record on August 15.

Required:

Prepare the journal entries necessary on those three dates.

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Answers (1)
  1. 7 January, 13:13
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    See explanation section

    Explanation:

    Dividend declaration date = August 1. The journal entry is as follows:

    Debit Retained Earnings $6,200,000

    Credit Dividends payable $6,200,000

    Calculation: $1.55 per share * 4,000,000 outstanding shares = $6,200,000

    As the dividend is declared, there is no cash paid. So, cash is not either debit or credit. As the company does not pay the dividends, a liability account will open.

    Dividend record date = August 15. There will be no journal entry required.

    Dividend payment date = September 9. The journal entry is as follows:

    Debit Dividends payable $6,200,000

    Credit Cash $6,200,000

    As soon as the cash dividend is paid, cash becomes credit because of the payment of dividends. The liability decreases after paying the stockholders'.
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