Hutter Corporation declared a $0.50 per share cash dividend on its common shares. The company has 31,000 shares authorized, 15,600 shares issued, and 12,400 shares of common stock outstanding. The journal entry to record the dividend declaration is: Multiple Choice O Debit Common Dividends Payable 57,800. Credit Cash $7.800. o Debit Retained Earnings $15,500; credit Common Dividends Payable $15.500 0 Debit Retained Earnings $6.200, credit Common Dividends Payable $6,200. o o o Debit Retained Earnings $7800, credit Common Dividends Payable $7.800 o o o Debit Common Dividends Payable 56.200credit Cash $6.200
The Correct Answer and Explanation is :
The correct journal entry to record the dividend declaration is:
Debit Retained Earnings $6,200; Credit Common Dividends Payable $6,200.
Explanation:
When a company declares a cash dividend, it recognizes a liability to its shareholders. The dividend amount is calculated by multiplying the dividend per share by the number of shares outstanding.
In this case, Hutter Corporation declared a $0.50 per share cash dividend on its common shares. The company has 12,400 shares of common stock outstanding. Therefore, the total dividend declared is:
[
\text{Total Dividend} = 0.50 \times 12,400 = 6,200
]
The journal entry to record the dividend declaration is:
- Debit Retained Earnings $6,200: This reduces the retained earnings account, reflecting the distribution of profits to shareholders.
- Credit Common Dividends Payable $6,200: This establishes a liability, indicating the company’s obligation to pay the declared dividends to shareholders.
This entry ensures that the company’s financial statements accurately reflect the dividend declaration and the corresponding liability.
The other options are incorrect because they either involve incorrect amounts or accounts.
For example, debiting Common Dividends Payable and crediting Cash pertains to the payment of the dividend, which occurs on a later date, not at the declaration stage.
Therefore, the correct journal entry at the time of dividend declaration is:
Debit Retained Earnings $6,200; Credit Common Dividends Payable $6,200.