Question

A company's board of directors votes to declare a cash dividend of $1.00 per share on its 12,000 common shares outstanding. The journal entry to record the declaration of the cash dividend is: Multiple Choice Debit Dividend Expense $12,000; credit Common Dividend Payable $12,000. Debit Retained Earnings $12,000; credit Common Dividend Payable $12,000. Debit Common Dividend Payable $12,000; credit Retained Earnings $12,000. Debit Common Dividend Payable $12,000; credit Cash $12,000. Debit Dividend Expense $12,000; credit Cash $12,000.

Answer 1

Answer:

Debit Retained Earnings $12,000; credit Common Dividend Payable $12,000.

Explanation:

A cash dividend is the amount attributable to the common stockholders based on the company's performance. It is synonymous to their profit from common stock.

The cash dividend declared of $1.00 per share on its 12,000 common shares outstanding translated to $12,000 ($1.00 x 12,000 units). As at the time the company's board of directors voted to declare this cash dividend, an accrual has to be recorded in the books. And to achieve that, the above entries have to be recorded.

However, at the point of payment to the common stockholders, we have to debit Common Dividend Payable and credit Cash.