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# Dividends

1. On the day that the board of directors declares a dividend payable to common stockholders, which account in the books is DECREASED?
A. cash
B. dividend payable
C. retained earnings
D. BOTH dividend payable and retained earnings
E. NONE of the above

2. On the day that the board of directors declares a dividend payable to common stockholders, which account in the books is INCREASED?

A.dividend payable
B.retained earnings
C. BOTH of the above
D. NONE of the above

3. The charter of Road Fever Travel Corp. authorizes 100,000 shares of Class A common stock with a par value of \$0.10 per share. To date, 40,000 shares have been issued. Five thousand shares are held as treasury stock.

If the board of directors declares a special dividend of \$0.75 per share -- which would be the company's first ever -- on how many shares will the dividend be paid?

A. 5,000
B. 35,000
C. 40,000
D. 45,000
E. 55,000

4. A return of capital: (Points: 1)
A. reduces retained earnings
B. reduces invested capital
C. BOTH of the above
D. NONE of the above

#### Solution Preview

1. On the day that the board of directors declares a dividend payable to common stockholders, which account in the books is DECREASED?
A. cash
B. dividend payable
C. retained earnings
D. BOTH dividend payable and retained earnings
E. NONE of the above

Ans: C
Exp: The journal entry on dividend declaration date is: Dr. Retained earnings and Credit Dividends Payable. Retained Earnings is the amount of money the company retains and that amount is reduced or decreased when they pay it out to customers, so retained earnings is ...

#### Solution Summary

The solution includes answers and detailed explanations for all the questions.

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