On December 31, 2011, Springer, Inc.has 3,000 shares of 6% $100 par value cumulative preference shares and 45,000 ordinary shares with a $10 par value outstanding.On December 31, 2011, 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 and a debit to retained earnings or dividends declared. Since preference shares are cumulative, any unpaid dividends from the prior years must also be paid before any dividends can be paid to ordinary shareholders. However, this information would not be part of the entry to record the declaration of the current year dividend. Therefore, the correct choice is D as it records the liability for dividend payment.