On May 26, Clark Co. purchased 1,000 of Langston Corporation stock at $20 per share plus a $75 brokerage fee. These shares are categorized as trading securities. Clark received a $1,500 quarterly cash dividend on the Langston shares. The journal entry to record the dividend is:
A)Debit Cash 1,500; credit Interest Revenue 1,500.
B)Debit Dividend Receivable 1,500; credit Dividend Revenue 1,500.
C)Debit Cash 1,500; credit Dividend Receivable 1,500.
D)Debit Cash 1,500; credit Dividend Revenue 1,500.
E)Debit Cash 1,500; credit Investment in Langston Corp.1,500.

Question

Quizplus · Accepted Answer

The journal entry to record a cash dividend received on a trading security is to debit Cash and credit Dividend Revenue. Therefore, the correct option is D. Option A is incorrect because Interest Revenue is not applicable to cash dividends on trading securities. Option B is incorrect because it records the dividend as a receivable when it has already been received in cash. Option C is incorrect because it records the dividend as a receivable when it has already been received in cash. Option E is incorrect because it records the dividend as an increase in the investment, when it is actually a decrease in equity due to distribution of profits.