Aaron Company has 80,000 shares of $10 par common stock outstanding. On May 25, Aaron Company declared a $1.50 cash dividend. The market price of the stock on May 25 was $17 per share. The journal entry to record the cash dividend would include

a. a debit to Cash Dividends for $120,000.

b. a debit to Cash for $560,000.

c. a credit to Paid-In Capital in Excess of Par-Common Stock for $560,000.

d. All of these choices are correct.

Question

Carolina

Business

7 July, 06:59

Aaron Company has 80,000 shares of $10 par common stock outstanding. On May 25, Aaron Company declared a $1.50 cash dividend. The market price of the stock on May 25 was $17 per share. The journal entry to record the cash dividend would include

a. a debit to Cash Dividends for $120,000.

b. a debit to Cash for $560,000.

c. a credit to Paid-In Capital in Excess of Par-Common Stock for $560,000.

d. All of these choices are correct.

+4

Answers (1)

Know the Answer?

Cade Ali · Answer 1

a. a debit to Cash Dividends for $120,000.

Explanation:

The amount of dividend paid is dependent on two function; the number of shares and the amount declared for payment per share.

When it is paid, a credit is posted to cash account and the corresponding debit is posted to the dividend paid account.

As such, since the company has 80,000 shares and the declared dividend was $1.50,

Total dividend paid = $1.50 * 80000

= $120,000.

Hence cash dividend is debited with $120,000 on payment.