Question

Fetzer Company declared a $0.50 per share cash dividend. The company has 460,000 shares authorized, 437,000 shares issued, and 18,400 shares in treasury stock. The journal entry to record the payment of the dividend is:

Multiple Choice

• Debit Common Dividends Payable $209,300; credit Cash $209,300.

• Debit Common Dividends Payable $218,500; credit Cash $218,500.

• Debit Retained Earnings $218,500; credit Common Dividends Payable $218,500.

• Debit Retained Earnings $209,300; credit Common Dividends Payable $209,300.

• Debit Retained Earnings $230,000; credit Common Dividends Payable $230,000.

Answer 1

Based on the information available in the question, the journal entry to record the payment of dividend is :-

The correct answer to the question is Option A - Debit Common Dividends payable $209,300; credit Cash $209,300.The dividends payable at the time of declaration is $209,300 (418,600 shares * $0.50). The payment of dividends will involve in a debit to common dividends payable and a credit to cash account for the $209,300 amount. Also, the 418,600 shares is arrived as a result of subtracting the 18,400 shares of treasury stock from the 437,000 shares of common stock issued. The treasury stock are purchases of the company's stock by the company itself. Hence, we will be subtracting the number of treasury stock in arriving at the dividend declaration/payment.

Option B is incorrect as it fails to exclude the number of treasury stock from the total common stock issued.

Option C, Option D and Option E are all incorrect because when there is a payment of dividends declared, the entry would involve a debit to the dividends payable and a credit to the cash account . However, these options do not reflect the right journal entry that should be recorded for the payment of the dividends. Hence they are invalid and are not the correct answer.

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