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On December 15, 2016, the board of directors of Cross Corporation declared a cash dividend, payable on January 8, 2017, of $0.98 per share on the 2,000,000 common shares outstanding. On December 15, 2016, Cross Corporation should:
not prepare a journal entry because the event had no effect on the corporation's financial position until 2017.
decrease retained earnings $1.96 million and increase expenses $1.96 million.
decrease retained earnings $1.96 million and increase liabilities by $1.96 million.
decrease cash $1.96 million and decrease retained earnings $1.96 million.

Respuesta :

Zviko

Answer:

decrease retained earnings $1.96 million and increase liabilities by $1.96 million.

Explanation:

Declaration of a Cash Dividend creates a present obligation of towards shareholders of common shares for the issue of dividends. This present obligation is presented as a Liability at year end. Hence Increase in Liability

Dividends whether paid or not , when declared, they reduce the Retained Earnings in the Statement of Changes in Equity. Thus a decrease in Retained Earnings is effected.

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