On February 16,a company declares a 34'dividend to be paid on April 5 to shareholders of record on March 9.There are 2 million shares of common shares outstanding and 100,000 shares of treasury shares.What accounting entries does the company make on April 5?

Question

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The company makes a debit to Dividends Payable and a credit to Cash for $646,000 on April 5. This is because the company declared a dividend of $0.34 per share on 2 million outstanding shares, which amounts to $680,000. However, 100,000 shares of treasury stock do not receive dividends, so the actual cash payment is $646,000 ($680,000 - $34,000 for treasury shares). Therefore, the correct accounting entry would be to debit Dividends Payable for $646,000 and credit Cash for the same amount. Option C is the correct answer.

On February 16,a Company Declares a 34'dividend to Be Paid