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 payment of the cash dividend is:
A)Debit Dividend Expense $12,000;credit Cash $12,000.
B)Debit Dividend Expense $12,000;credit Common Dividend Payable $12,000.
C)Debit Common Dividend Payable $12,000;credit Cash $12,000.
D)Debit Retained Earnings $12,000;credit Common Dividend Payable $12,000.
E)Debit Common Dividend Payable $12,000;credit Retained Earnings $12,000.

Question

Quizplus · Accepted Answer

When a company declares a dividend, it creates a liability called Common Dividend Payable for the amount to be paid to shareholders. This liability account is credited for the amount of the dividend and Cash is debited for the same amount when the dividend is actually paid. Therefore, the correct journal entry to record the payment of the cash dividend is to Debit Common Dividend Payable $12,000 and Credit Cash $12,000.

A Company's Board of Directors Votes to Declare a Cash