1. While preparing the cash flow statement of a company, its accountant observed

Question

1. While preparing the cash flow statement of a company, its accountant observed an increase of $100,000 in the value of cash and cash equivalents of the company. Which of the following is true of the journal entry the accountant is likely to prepare to record the increase of cash and cash equivalents for the year assuming that the company was likely to pay a cash dividend of $15,000 to its shareholders the following year?

a) Cash and cash equivalents would be debited by $15,000, while cash dividends would be credited by $15,000.

b) Net increase in cash and cash equivalents would be debited by $15,000, while cash dividends would be credited by $15,000.

c)Cash and cash dividends would be debited by $95,000 and $15,000, respectively, while the net increase in cash and cash equivalents would be debited by $110,000.

d) Cash would be debited by $95,000, while the net increase in cash and cash equivalents would be debited by $95,000.

Explanation / Answer

Option (A) Cash and cash equivalents would be debited by $15,000, while cash dividends would be credited by $15,000. Is correct

Option a is correct because payment of cash dividend should be reduced from cash and cash equivalents and should be credited to cash dividends but not from net increase in cash and cash equivalents, remaining options are not correct.

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