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Basse Corporation has 7,000 shares of common stock outstanding. It declares a $1 per share cash dividend on November 1 to stockholders of record on December 1. The dividend is paid on December 31. Prepare the entries on the appropriate dates to record the declaration and payment of the cash dividend

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Answer:

November 1, declaration of cash dividends

  • Dr Retained Earnings account 7,000
  • Cr Dividends Payable account 7,000

December 31, distribution of cash dividends

  • Dr Dividends Payable account 7,000
  • Cr Cash account 7,000

Explanation:

The cash dividends will decrease the retained earnings account, since retained earnings is an equity account, when it decreases it has to be debited.

Dividends payable account is a liability account created when the company declared the dividends and it is cancelled when the company pays the dividends.

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