Which of the following correctly describes the recording of a dividend declaration by a company's board of directors?

  1. A debit to retained earnings and a credit to cash.
  2. A debit to additional paid-in capital and a credit to dividends payable.
  3. A debit to cash and a credit to retained earnings.
  4. A debit to retained earnings and a credit to dividends payable.

Answer d. A debit to retained earnings and a credit to dividends payable

Explanation: In accounting, the retained earnings become a part of the shareholder’s income but are not yet received. Dividend declarations and dividend payable are the actual dates recorded in the book as the shareholders have received their share of dividends.

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