A company's board of directors votes to declare a cash dividend of $1.00 per share on its 12,000 common shares outstanding.The journal entry to record the payment of the cash dividend is:

A) Debit Dividend Expense $12,000; credit Cash $12,000.
B) Debit Dividend Expense $12,000; credit Common Dividend Payable $12,000.
C) Debit Common Dividend Payable $12,000; credit Cash $12,000.
D) Debit Retained Earnings $12,000; credit Common Dividend Payable $12,000.
E) Debit Common Dividend Payable $12,000; credit Retained Earnings $12,000.

Question

Brayden Steckler · Accepted Answer

Final Answer : C, Explanation :  The journal entry to record the payment of cash dividend is to debit Common Dividend Payable for $12,000 and credit Cash for $12,000. This is because the company owes the dividend to its shareholders and therefore the liability is recorded by crediting Common Dividend Payable. The cash payment is recorded by debiting Common Dividend Payable. Option A would be incorrect because dividend expense is not involved in the transaction. Option B would be incorrect because the dividend payable is for common shares and not a separate account. Option D would be incorrect because retained earnings are not involved in this transaction. Option E would be incorrect because retained earnings are not credited in the transaction.

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