Q5. The board of directors of Capstone Inc. declared a S0.60 per share cash divi

Question

Q5. The board of directors of Capstone Inc. declared a S0.60 per share cash dividend on its $1 par common stock. On the date of declaration, there were 50,000 shares authorized, 20,000 shares issued, and 5,000 shares held as treasury stock. What is the entry when the dividends are declared? A. Dr. Dividends 9,000 Cr. Dividends Payable 9,000 B. Dr. Dividends 9,000 Cr. Cash 9,000 C. Dr. Dividends 12,000 Cr. Dividends Payable 12,000 D. Dr. Dividends 12,000 Cr. Cash 12,000 Q6. A feature common to both stock splits and stock dividends is That there is no effect on total stockholders' equity A reduction in Retained Earnings An increase in Common Stock. A reduction in the par value of the shares issued. A. B. C. D. Q7. Arrow Printers paid $2,000 interest on short-term notes payable, paid $10,000 interest on long-term bonds, and paid $6,000 in dividends on its common stock. Arrow would report cash outflows from activities, as follows A. Operating, $2,000; Financing S16,000 B. Operating, $0; Financing $18,000 C. Operating, $12,000; Financing $6,000 D. Operating, $18,000; Financing S0

Explanation / Answer

Correct answer is C

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Number of issued shares = 20000

So company has to pay dividend on 20000 shares

Total dividend = 20000* .6 = 12000

Two accounts involve here are dividend and dividend payable.

Dividend is an expense account while dividend payable is a liability account.

Expense account increase with a Dr and reduce with Cr, while liability account increase with Cr and decrease with Dr.

So dividend account will be Dr with 12000 and dividend payable account will be Cr with the same amount.

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Hope this answer your query.

Feel free to comment if you need further assistance. J

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