Question

On April 2, West Company declared a cash dividend of $0.50 per share. There are 50,000 shares outstanding. What is the journal entry that should be recorded?

a) Debit Dividends $25,000; Credit Cash $25,000
b) Debit Cash $25,000; Credit Dividends Payable $25,000
c) Debit Retained Earnings $25,000; Credit Cash $25,000
d) Debit Cash $25,000; Credit Dividends $25,000

Answer 1

The journal entry that should be recorded when a company declares a cash dividend is to Debit Cash $25,000 and Credit Dividends Payable $25,000.

Step-by-step explanation:

The journal entry that should be recorded when a company declares a cash dividend is: b) Debit Cash $25,000; Credit Dividends Payable $25,000.

Here's the step-by-step explanation:

1. Debit Cash: This entry records the cash going out of the company to pay the dividends. In this case, it would be $25,000 (0.50 per share multiplied by 50,000 shares).
2. Credit Dividends Payable: This entry represents the liability created by declaring the cash dividend. It indicates that the company owes this amount to the shareholders.

Therefore, the correct journal entry is to Debit Cash $25,000 and Credit Dividends Payable $25,000.