Chapter 13 Quiz A companys board of directors votes to decla

Chapter 13 Quiz A company\'s board of directors votes to declare a cash dividend of $100 per share on its 12.000 outstanding. The journal entry to record the payment of the cash Multiple Choice Debit Dividend Expense $12,000, credit Cash $12.000 Debit Dividend Expense $12.000, credit Common Dividend Payable $12.000 Debit Common Dividend Payable $12.000, creait Cash $ 5

Solution

Answer:

Option 3 i.e. “Debit Common Dividend Payable $12,000 and Credit Cash $12,000” is Correct.

No. of Shares Outstanding = 12,000 Shares
Dividend declared per Share = $1
Total Dividend Payable = 12,000 * $1 = $12,000

On declaration of Dividend, the Journal Entry to record the transaction will Debit Retained Earning for $12,000 and Credit Common Dividend Payable for $12,000.

Retained Earning $12,000
Common Dividend Payable $12,000

Once declared, a Dividend becomes the Liability and the payment of the cash dividend is recorded by Debiting Common Dividend Payable for $12,000 and Credit Cash for $12,000.

Common Dividend Payable $12,000
Cash $12,000