Ella Lucy organized a corporation called Minecraft Games Inc. The corporation wa

Question

Ella Lucy organized a corporation called Minecraft Games Inc. The corporation was authorized to sell 100,000 shares of $2 par value common stock. On Nov 1, the company issued 10,000 shares of common stock and on Nov 15, the company declared its first annual dividend of $5 per share to be paid on Dec 15. The journal entry to record the declaration of the dividend would be:

A. Debit Dividends $50,000; Credit Dividends Payable $50,000

B. Debit Dividends $10,000; credit Dividends Payable $10,000

C. Debit Dividends $10,000; credit Cash $10,000

D. Debit Dividends $50,000; credit Cash $50,000

Explanation / Answer

When dividend is declared at that time dividend account is debited and a current liability account is credited to account for the dividend to be paid in future. In the given case, amount of dividend is 10,000 * 5 = $50,000.

The journal entry to record the declaration of the dividend would be:

A. Debit Dividends $50,000; Credit Dividends Payable $50,000

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