Question

Assuming the same facts as Question 12462, what is the journal entry that should be recorded on May 5, the date of payment?

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

Answer 1

The correct journal entry for paying out dividends on May 5th is to debit Dividends Payable for $25,000 and credit Cash for the same amount, showing that the company has paid its dividend obligations.The correct answer is option d.

Step-by-step explanation:

The correct journal entry for the date of payment of the dividends on May 5th is to debit Dividends Payable and credit Cash, reflecting the payment of dividends to shareholders.


This is recorded as a decrease in liabilities (Dividends Payable) and a decrease in assets (Cash).

Therefore, the correct journal entry is:

• Debit Dividends Payable $25,000
  
• Credit Cash $25,000
  

This entry shows that the company has fulfilled its obligation to pay the dividends by reducing the Dividends Payable balance and also shows the outflow of cash from the company as the payment is made.