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On November 27, the board of directors of Armstrong Company declared a $.50 per share dividend. The dividend is payable to shareholders of record on December 7 on December 24. Armstrong has 25,500 shares of $1 par common stock outstanding at November 27. Journalize the entries needed on the declaration and payment dates. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

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ladeitan

Answer:

On November 27

Debit Retained earnings $12,750

Credit Dividend payable $12,750

(To record the dividend declared)

On December 24

Debit Dividend payable $12,750

Credit Cash $12,750

(To record dividend paid)  

Explanation:

  • Dividends on gains on shares bought by the shareholders. They arise due to appreciation in share price and improvement in company's net income.
  • The dividend payable was calculated as $.5 x 25,500 shares = $12,750.
  • Dividends are usually paid out of retained earnings.
  • The dividend payable account is debited when payment is to be made.