Question

On November 1, 2018, Nada, Inc. declared a dividend of $5.00 per share on common stock. Nada, Inc. has 20,000 shares of common stock outstanding and no preferred stock. The date of record is November 15, and the payment date is November 30, 2018. Which of the following is the journal entry needed on November 30, 2018?
A) Debit Cash Dividends $100,000, and credit Dividends Payable—Common $100,000.
B) Debit Dividends Payable—Common $100,000, and credit Cash $100,000.
C) Debit Cash $100,000, and credit Dividends Payable—Common $100,000.
D) Debit Cash Dividends $100,000, and credit Cash $100,000.

Answer 1

Answer:

The correct answer is Option B.

Explanation:

Dividend is simply synonymous to a profit from stockholder's investment (usually in form of shares). Dividend is usually declared when the company that the stockholder invests in is performing well.

On November 15 when the dividend declared was recorded, the following journals would have been recorded:

Debit Retained earnings ($5 x 20,000)           $100,000

Credit Dividend payable                                   $100,000

(To record declaration of dividend)

However, when it became payable on November 30, 2018, the dividend payable account has to be debited as follows:

Debit Dividend payable                                    $100,000

Credit Cash                                                        $100,000

(To record dividend paid to stockholders)