Question

(In 200 words using a real-life example from a public American business)Part 4: Describe the significance for the cash dividend Declaration date. Explain if there is a journal entry or some other type of record necessary for the cash dividend Declaration date. (Review page 585)

Answer 1

The date on which the company declares dividend is called as the dividend declaration date. On this date the company also sets the record date as on which the shareholders holding shares as on the record date will be eligible for the dividend on their shares.Declaration date of dividend is only for the common stock holders because the preferred stockholders will earn a fixed percentage of dividend on their shareholding.

If a company has declared a dividend then it cannot take back the decision and it become mandatory for the company to pay dividend to the shareholder. In other words after declaring the dividends. it becomes a legal liability of the company to adhere to its decision. Usually the company declares dividends at the end of the financial year in its annual results. If a company wants to give dividends during the year it can give by declaring interim dividends which is declared in mid of the year.

It is also mandatory for the company to pay dividends within the stipulated time from the date of declaring of dividends. Therefore declaration date becomes a significant date to calculate whether the dividends are paid within the stipulated time or not.

Moreover the declaration date is not the payment date and the company need to pass journal entry on the day of declaration of dividend.

Journal entry

Dividend Account debit

To dividend payable Account Credit.

If you find the answer helpful please upvote.