On December 15, 20B, the board of directors of Home Corporation declared a cash dividend, payable on January 8, 20C, of $2 per share on the 100,000 common shares outstanding. The accounting period ends December 31. Because of this action, on December 15, 20B, Home Corporation should do which of the following?
A) Decrease retained earnings $200,000 and increase contributed capital $200,000.
B) Decrease cash $200,000 and decrease retained earnings $200,000.
C) Decrease retained earnings $200,000 and increase liabilities $200,000.
D) Make no journal entry because the event had no effect on the corporation's financial position until 20C.

Question

Quizplus · Accepted Answer

On December 15, 20B, when the dividend is declared, Home Corporation should decrease retained earnings by $200,000 and increase liabilities (dividends payable) by $200,000. This reflects the obligation to pay the dividend in the future.

On December 15, 20B, the Board of Directors of Home