Hutter Corporation declared a $0.50 per share cash dividend on its common shares.The company has 20,000 shares authorized,9,000 shares issued,and 8,000 shares of common stock outstanding.The journal entry to record the dividend declaration is:
A)Debit Retained Earnings $4,000;credit Common Dividends Payable $4,000.
B)Debit Common Dividends Payable $4,000;credit Cash $4,000.
C)Debit Retained Earnings $4,500;credit Common Dividends Payable $4,500.
D)Debit Common Dividends Payable $4,500;credit Cash $4,500.
E)Debit Retained Earnings $10,000;credit Common Dividends Payable $10,000.

Question

Quizplus · Accepted Answer

The journal entry to record the dividend declaration involves debiting retained earnings (for the total amount of the dividend declared) and crediting common dividends payable (to reflect the liability of paying out the dividend to shareholders). Since the company has issued 9,000 shares but only has 8,000 shares outstanding, not all shareholders will receive the dividend. Therefore, the entry will only reflect the dividend payable to the 8,000 outstanding shares. The correct journal entry is Debit Retained Earnings $4,000; credit Common Dividends Payable $4,000.

Hutter Corporation Declared a $0