LMN Ltd declared an interim dividend on 12 February 2016 of 5 cents per share (500 000 issued shares)and paid it on 3 March 2016.
- The journal entry on 3 March 2016 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 2016 would include a credit to cash for the amount of the dividend paid ($25,000) and no other accounts. The dividend was already declared and therefore no additional account needs to be credited. Option A is incorrect because the interim dividend was already declared on 12 February 2016. Option C is incorrect because the interim dividend payable was already paid on 3 March 2016. Option D is incorrect because no retained profit account is affected by the payment of an interim dividend.

LMN Ltd Declared an Interim Dividend on 12 February 2016