Following is the shareholders' equity section of the balance sheet of the Optimum Corporation: Share capital:
Common shares,100,000 shares authorized,
The common shares are currently selling for $15.50 per share.
The entry to record the declaration of a $0.75 per share cash dividend includes:

Question

Following is the shareholders' equity section of the balance sheet of the Optimum Corporation: Share capital:
Common shares,100,000 shares authorized,
 The common shares are currently selling for $15.50 per share.
The entry to record the declaration of a $0.75 per share cash dividend includes:

Quizplus · Accepted Answer

To record the declaration of a cash dividend, a company needs to debit its Retained Earnings account and credit its Dividends Payable account. The amount of the dividend is calculated as the dividend per share times the number of outstanding shares. In this case, the dividend per share is $0.75, and the number of outstanding shares is 100,000. Therefore, the total amount of the dividend is $75,000. The correct entry to record the declaration of the dividend is:

Debit Dividends Payable $75,000
Credit Retained Earnings $75,000

Option A is incorrect because it only reflects the amount of the dividend per share, not the total amount of the dividend. Option B is incorrect because it suggests that the issuance of common shares is involved, which is not the case. Option D is incorrect because it overstates the impact of the dividend on the company's retained earnings.

Following Is the Shareholders' Equity Section of the Balance Sheet