On February 16, a company declares a 34$\prime$ dividend to be paid on April 5. There are 2 million shares of common stock issued and 100,000 shares of treasury stock. What does the company record on April 5?
A) A debit to Dividends Payable and a credit to Cash for $680,000.
B) A debit to Dividends Declared and a credit to Dividends Payable for $646,000.
C) A debit to Dividends Payable and a credit to Cash for $646,000.
D) A debit to Dividends Declared and a credit to Dividends Payable for $680,000.

Question

Quizplus · Accepted Answer

The company declares the dividend on February 16, so on that date, the entry would be a debit to Retained Earnings (or dividends declared) and a credit to Dividends Payable. However, on April 5, when the dividend is actually paid, the company would record a debit to Dividends Payable (to reduce the liability) and a credit to Cash (since cash is being paid out). The total amount of the dividend is calculated as follows:
($0.34 per share x 2,000,000 shares) - ($0.34 per share x 100,000 treasury shares) = $646,000. Therefore, choice C is correct.

On February 16, a Company Declares a 34 ′\prime′ Dividend to Be Paid on April 5

On February 16, a Company Declares a 34 $\prime$ Dividend to Be Paid on April 5