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Hutter Corporation declared a $0.50 per share cash dividend on its common shares. The company has...

Hutter Corporation declared a $0.50 per share cash dividend on its common shares. The company has 21,000 shares authorized, 9,600 shares issued, and 8,400 shares of common stock outstanding. The journal entry to record the dividend declaration is:  

a. Debit Retained Earnings $4,200; credit Common Dividends Payable $4,200.

b. Debit Common Dividends Payable $4,200; credit Cash $4,200.

c. Debit Retained Earnings $4,800; credit Common Dividends Payable $4,800.

d. Debit Common Dividends Payable $4,800; credit Cash $4,800.

e. Debit Retained Earnings $10,500; credit Common Dividends Payable $10,500.

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Answer #1

Number of common shares outstanding = 8,400

Dividend per share = $0.50

Total dividend declared = Number of common shares outstanding x Dividend per share

= 8,400 x 0.50

= $4,200

Due to dividend declared, retained earnings will decrease and a liability in the form of common dividends payable will increase. Thus, the entry to record dividend declaration would be:

a. Debit Retained Earnings $4,200; credit Common Dividends Payable $4,200.

Correct option is a.

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