On January 1,2013,Warhol Company issued 1,000 shares of 10%,$100 par value,cumulative preferred stock for $100,000.On December 30,2015,the Board declared dividends of $20 per share on the preferred stock.What journal entry is necessary for the declaration of dividends?

Question

Quizplus · Accepted Answer

The journal entry to record the declaration of preferred dividends is a debit to the preferred dividends account and a credit to the preferred dividends payable account. Option C correctly reflects this with a debit to Preferred Dividends and a credit to Preferred Dividends Payable. Option A is incorrect because it debits Retained Earnings instead of Preferred Dividends. Option B is incorrect because it debits Dividends Payable instead of Preferred Dividends Payable. Option D is incorrect because it debits cash, which is not necessary for the declaration of dividends.

On January 1,2013,Warhol Company Issued 1,000 Shares of 10%,$100 Par