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The board of directors of Oriole Company declared a cash dividend of $2 per share on 48000 shares...

Question:

The board of directors of Oriole Company declared a cash dividend of $2 per share on 48000 shares of common stock on July 15, 2017.

The dividend is to be paid on August 15, 2017, to stockholders of record on July 31, 2017.

The correct entry to be recorded on July 15, 2017, will include a

a) credit to Cash Dividends

b) credit to Cash

c) debit to Dividends Payable

d) debit to Cash Dividends

Dividend Accounting:

The company compensates the common shareholders by distributing the profit generated by the company by way of declarations of dividends per share. The dividends can be paid in cash and distributed from the existing balance of retained earnings of the company

Answer and Explanation:

Answer is D

The details of the transaction on July 15, 2017

  • The outstanding shares on this date is 48,000 number
  • The dividend declared is $2 per share
  • The dividend payable is $96,000 (48,000 x $2)

When cash dividend is declared the following entry is passed on the date of declaration

  Date      Account title and Explanation      Debit ($)      Credit ($)   
  July 15, 2017       Dividends       96,000         
   Dividend payable             96,000   
      ( to record the liability of dividend to be paid on the declaration date is $96,000)            

The correct entry to be recorded on July 15, 2017, will include a debit to Cash Dividends


Learn more about this topic:

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Cash Dividends & Dividend Payment

from Finance 101: Principles of Finance

Chapter 16 / Lesson 1
4.5K

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