On December 31, 2010, Springer, Inc. has 3,000 shares of 6% $100 par value cumulative preferred stock and 45,000 shares of $10 par value common stock outstanding. On December 31, 2010, the directors declare a $12,000 cash dividend. The entry to record the declaration of the dividend would include:

Question

Quizplus · Accepted Answer

The entry to record the declaration of the dividend would include a credit to Dividends Payable because this is the liability created when a dividend is declared, and it is payable in the future. The other choices are incorrect because there is no reason to credit Retained Earnings or debit Common Stock for a declaration of a dividend, and the statement about dividends in arrears on preferred stock would be disclosed in the notes to the financial statements, not recorded in the journal entry.