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On January 1, 2021, the general ledger of Grand Finale Fireworks includes the following account balances:
Accounts Debit Credit
Cash $ 44,300
Accounts Receivable 47,700
Supplies 9,100
Equipment 80,000
Accumulated Depreciation $ 10,600
Accounts Payable 16,200
Common Stock, $1 par value 16,000
Additional Paid-in Capital 96,000
Retained Earnings 42,300
Totals $ 181,100
During January 2021, the following transactions occur:
January 2 Issue an additional 2,000 shares of $1 par value common stock for $40,000.
January 9 Provide services to customers on account, $18,800.
January 10 Purchase additional supplies on account, $6,500.
January 12 Purchase 1,100 shares of treasury stock for $19 per share.
January 15 Pay cash on accounts payable, $18,100.
January 21 Provide services to customers for cash, $50,700.
January 22 Receive cash on accounts receivable, $18,200.
January 29 Declare a cash dividend of $0.20 per share to all shares outstanding on January 29. The dividend is payable on February 15. (Hint: Grand Finale Fireworks had 16,000 shares outstanding on January 1, 2021, and dividends are not paid on treasury stock.)
January 30 Resell 700 shares of treasury stock for $21 per share.
January 31 Pay cash for salaries during January, $43,600.
The following information is available on January 31, 2021.
a. Unpaid utilities for the month of January are $7,800.
b. Supplies at the end of January total $6,700.
c. Depreciation on the equipment for the month of January is calculated using the straightline method. At the time the equipment was purchased, the company estimated a service life of three years and a residual value of $11,600.
d. Accrued income taxes at the end of January are $2,700.
Required:
1. Record the declaration of a cash dividend of $0.20 per share to all shares outstanding on January 29. The dividend is payable on February 15.

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Answer:

Grand Finale Fireworks

1. Record of the declaration of a cash dividend of $0.20 per share to all shares outstanding on January 29:

Outstanding shares:

Jan 1 outstanding = 16,000

add Jan 2 issue = 2,000

less Treasury stock = 1,100

Outstanding = 16,900

Calculation of cash dividend:

Dividend amount = $0.20 x 16,900 = $3,380

Accounting records for the declaration would be:

January 29:

Debit Dividends with $3,380

Credit Dividends Payable with $3,380

To record the declaration of $0.20 cash dividend to outstanding shares of 16,900 on this date.

Explanation:

When a dividend is declared, the dividend becomes payable on the shares outstanding at the date of record.  This is one of the three important dates with respect to dividends.  The first is the declaration date, which records the liability of the dividend.  The second date is the date of record, which calculates the shares outstanding to which dividends would be paid.  And the last is the payment date, when the dividend is settled.

When a dividend is declared, therefore, the records necessary are a debit to Dividend Account and a credit to Dividends Payable account.

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