The board of directors of Yancey Company declared a cash dividend of $1.50 per share on 42,000 shares of common stock on July 15, 2017. The dividend is to be paid on August 15, 2017, to stockholders of record on July 31, 2017. The effects of the journal entry to record the declaration of the dividend on July 15, 2017, are to
A)decrease stockholders' equity and increase liabilities.
B)decrease stockholders' equity and decrease assets.
C)increase stockholders' equity and increase liabilities.
D)increase stockholders' equity and decrease assets.

Question

Quizplus · Accepted Answer

When a company declares a dividend, it is reducing its retained earnings (a component of stockholders' equity) and incurring a liability to pay the dividend. Therefore, the entry would decrease stockholders' equity (retained earnings) and increase liabilities.

The Board of Directors of Yancey Company Declared a Cash