Question

A company declared and paid dividends of​ $1,300. How does this transaction affect the accounting​ equation?

A.Add​ $1,300 to Dividends and add​ $1,300 to Accounts Receivable.

B.Add​ $1,300 to Revenue and add​ $1,300 to Cash.

C.Add​ $1,300 to Dividend Expense and subtract​ $1,300 from Cash.

D.Subtract​ $1,300 from Retained Earnings and subtract​ $1,300 from Cash.

Answer 1

Correct option is D. Subtract $1300 from retained earnings and subtract $1300 from cash.

Explanation:

Journal entry for Dividend declared:

Retained earnings Account .... Debit $1300

Dividend payable Account .... Credit $1300

Journal entry for Dividend paid:

Dividend payable Account .... Debit $1300

Cash Account .... Credit $1300

Ultimately this entry will impact on Accounting equation is reduced retained earnings by $1300 and reduce cash by $1300.