On December 31 2017 Stanford Inc. has 1500 shares of 6% $100 par value cumulative preferred stock and 90000 shares of $10 par value common stock outstanding. On December 31 2017 the directors declare a $30000 cash dividend. The entry to record the declaration of the dividend would include:

Question

Quizplus · Accepted Answer

The entry to record the declaration of the dividend would include a debit to Retained Earnings and a credit to Dividends Payable. Therefore, the correct choice is D. Choice A is incorrect because it does not have a corresponding debit entry to Retained Earnings. Choice B is incorrect because it is not part of the journal entry to record the declaration of the dividend. Choice C is incorrect because it implies that the common stock is being reduced, which is not the case when declaring a cash dividend.