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12 September, 10:48

On May 20, the board of directors for Auction declared a cash dividend of 50 cents per share payable to stockholders of record on June 14. The dividends are paid on July 14. The company has 510,000 shares of stock outstanding. Closing entries are recorded on July 31. Prepare any necessary journal entries for each date.

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  1. 12 September, 10:55
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    May 20

    No Entry

    June 14

    Dr. Dividends $255,000

    Cr. Dividend Payable $255,000

    July 14

    Dr. Dividend Payable $255,000

    Cr. Cash $255,000

    July 31

    Dr. Retained Earnings $255,000

    Cr. Dividend $255,000

    Explanation:

    Dividend = $0.5 x 510,000 = $255,000

    May 20

    Dividend is declared, No entry is required

    June 14

    Dividend to be recorded on this date. As dividend is not paid yet so it will be recorded as payable and on the other hand dividend account is debited to make a contra capital account of dividend.

    July 14

    Dividend is paid as cash is paid so, it will be credited and the liability is reduced so, it will be debited.

    July 31

    At the end of the period we have to adjust the Dividend Contra capital account in retained earning to make the dividend account zero.
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