Fetzer Company declared a $0.40 per share cash dividend. The company has 220,000

Question

Fetzer Company declared a $0.40 per share cash dividend. The company has 220,000 shares authorized, 209,000 shares issued, and 8,800 shares in treasury stock. The journal entry to record the payment of the dividend is:

rev: 02_08_2014_QC_44760

Debit Retained Earnings $83,600; credit Common Dividends Payable $83,600.

Debit Retained Earnings $88,000; credit Common Dividends Payable $88,000.

Debit Retained Earnings $80,080; credit Common Dividends Payable $80,080.

Debit Common Dividends Payable $80,080; credit Cash $80,080.

Debit Common Dividends Payable $83,600; credit Cash $83,600.

Fetzer Company declared a $0.40 per share cash dividend. The company has 220,000 shares authorized, 209,000 shares issued, and 8,800 shares in treasury stock. The journal entry to record the payment of the dividend is:

Explanation / Answer

Debit Retained Earnings. 80080

Credit Common Dividends payable. 80080

Treasury stock do not enjoy dividend rights as they have been repurchased by the company and so a company cannot pay dividend to itself. And so the dividend calculation has been done on 200200 shared i.e. 209000- 8800 and dividend payable is 200200×0.4%

Since it has been declared and not paid, dividend payable account is credited and not cash

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