On January 15, 2011, Rockney Systems, Inc. paid a cash dividend that had been declared prior to the end of its 2010 fiscal year. The entry to pay the dividends includes a debit to:

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When a company declares dividends, it records a debit to Retained Earnings and a credit to Dividends Payable. When the dividends are paid, the company records a debit to Dividends Payable and a credit to Cash, which reduces the liability created by the initial dividend declaration. Therefore, option B is correct – the entry to pay dividends includes a debit to Dividends Payable and a credit to Cash.