On November 1,2015,Oster Inc.declared a dividend of $3.00 per share.Oster Inc.has 20,000 shares of common stock outstanding and no preferred stock.Which of the following is the journal entry needed to record the declaration of dividends?

Question

Quizplus · Accepted Answer

When a company declares a dividend, it incurs a liability to its shareholders. This liability is recorded as "Dividends Payable-Common" account under the current liabilities section of the balance sheet.

The journal entry to record the declaration of dividends includes debiting the retained earnings and crediting the dividends payable account. Therefore, option C is the correct choice.

Option A is incorrect because it debits dividends payable instead of crediting it.
Option B is incorrect because it debits retained earnings without crediting the dividends payable account, which is created as a result of the dividend declaration.
Option D is incorrect because it debits cash, which is not the account affected when a dividend is declared.