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The board of directors of Yancey Company declared a cash dividend of $1.50 per share on 42,000 shares of common stock on July 15, 201X. The dividend is to be paid on August 15, 201X, to stockholders of record on July 31, 201X. The effects of the journal entry to record the declaration of the dividend on July 15, 201X are toQuestion 6 options:A. decrease stockholder's equity and increase liabilitiesB. decrease stockholder's equity and decrease assetsC. increase stockholders' equity and decrease assetsD. increase stockholders' equity and increase liabilities

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Answer: A. decrease stockholder's equity and increase liabilities

Explanation:

When Stock is declared, the relevant entries include;

DR  Retained Earnings

    CR Dividends Payable

Retained Earnings is an Equity account that the dividends will be taken from and will reduce as a result. This is why it is being debited.

Dividends Payable is a liability account that will be credited to show that the company owes its shareholders dividends. Liabilities will therefore increase.

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