LMN Ltd declared an interim dividend on 12 February 2012 of 5 cents per share (500 000 issued shares)and paid it on 3 March 2012.The journal entry on 3 March 2012 would include:
A) DR Interim dividend declared,$25 000
B) CR Cash,$25 000
C) CR Interim dividend payable,$25 000
D) CR Retained profits,$25 000.

Question

Quizplus · Accepted Answer

The journal entry on 3 March 2012 would include a credit to Cash for the amount of the dividend paid ($25,000). Since the dividend had already been declared and there was no longer an obligation to pay it, there would be no credit to Interim dividend payable (C). Also, since the dividend had been paid out of retained earnings, there would be no credit to Retained profits (D). The only appropriate debit would have been to Interim dividend declared (A), but since there is no option for this, the best choice is B.

LMN Ltd Declared an Interim Dividend on 12 February 2012