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On the declaration date of a cash dividend, which journal entry is recorded?
ADebit retained earnings; credit cash
BDebit cash dividends payable; credit cash
CDebit cash dividends; credit cash dividends payable
DDebit cash; credit cash dividends payable
Answer & Solution
Correct answer: C. Debit cash dividends; credit cash dividends payable
1. Declaration commits the corporation to pay, creating a liability.
2. The contra-equity account Cash Dividends is debited for the amount declared.
3. Cash Dividends Payable (a liability) is credited.
4. Cash is not paid until the payment date, so option B describes the later entry.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §6.5 "Cash Dividends", p.253_
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