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?

Question

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When a company declares a dividend, it incurs a liability to its shareholders. The liability is recorded as a current liability on the company’s balance sheet. Therefore, on December 15, 20B, when Home Corporation declared the cash dividend of $2 per share, it should decrease retained earnings by $200,000 (which is the total amount of dividend payable) and increase its liabilities by $200,000 (which is the total amount of dividend declared). This entry will recognize the liability for the dividend on the company’s books. Note that Home Corporation would make the actual payment of dividend in 20C, which is after the accounting period of December 31,20B, for which this entry is being made.

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