Question

Troutman Corporation has 7,000 shares of common stock outstanding. It declares a $1 per share cash dividend on November 1 to stockholders of record on December 1. The dividend is paid on December 31.

Prepare the entries on the appropriate dates to record the declaration and payment of the cash dividend. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.)

Answer 1

Concepts and reason

Common stock: Common stock is the share held by the common stockholders. Common stockholders have the power to elect board of directors and also to vote on the major decisions of the company. It is a part of stockholders’ equity. Common stock will have credit balance. Issue of common stock will increase the common stock balance.

Dividends: These are the payments distributed by the company from the profits to their stockholders’. Usually dividends are in the form of cash or stock. These dividends are recorded in retained earnings statement as a deduction.

Fundamentals

Accrual basis of accounting: It is one of the methods of basis of accounting that records the transactions basing on the accrual principle. It recognizes the revenue in the books of accounts as and when the conditions pertaining to the revenues are fulfilled to earn it. It records expenses, as and when there is an obligation raised pertaining to the payment of expense incurred.

Journal entries: The transactions of an organization are recorded in the books of accounts through journal entries. The analyzing and journalizing of transactions is the second step in the accounting cycle. These journal entries are used to post the transactions into ledger.

Prepare the following journal entry to record the declaration of dividends on November 1.

Prepare the following journal entry to record the payment of cash dividends on December 31.

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