Answer:
The company should Debit Retained Earnings (decrease) by $1,600,000 and Credit Liabilities - Dividend Payable ( increase) by $1,600,000.
Explanation:
Please find the below for detailed explanation and calculations:
First, we calculate the total amount of dividend to be paid: Number of outstanding shares x Dividend paid per share = 2,000,000 x 0.8 = $1,600,000
Second, decide which account to be increase/decrease:
As at December 15,2019; the BOD of Cross declared the dividend, Cross must make accounting entry that reflect this declaration. The entry will be Debit Retained Earnings ( decrease - because Dividend is paid out of Retained Earnings account) and Credit Dividend Payable ( increase) to record the firm's liabilities, in term of dividend paid in the future, owed to its shareholders. Details as below:
15 Dec 2019 Dr Retained Earning $1,600,000
Cr Dividend Payable $1,600,000
