A Company's Board of Directors Votes to Declare a Cash

question 114

Multiple Choice

A company's board of directors votes to declare a cash dividend of $1.00 per share on its 12,000 common shares outstanding. The journal entry to record the declaration of the cash dividend is:

• A) Debit Dividend Expense $12,000; credit Common Dividend Payable $12,000.
• B) Debit Dividend Expense $12,000; credit Cash $12,000.
• C) Debit Retained Earnings $12,000; credit Common Dividend Payable $12,000.
• D) Debit Common Dividend Payable $12,000; credit Retained Earnings $12,000.
• E) Debit Common Dividend Payable $12,000; credit Cash $12,000.

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Definitions:

Net Profit Margin

A financial metric expressing the percentage of revenue that remains as profit after all operating and non-operating expenses have been deducted.

Gross Margin

The difference between revenue and cost of goods sold, which serves as a measure of a company’s manufacturing and distribution efficiency.

Return On Total Assets

A financial ratio that measures the profitability of a company relative to its total assets, indicating how efficiently a company uses its assets to generate profits.

Return On Equity

A metric that gauges the effectiveness of a firm in utilizing investments to drive earnings growth, determined by dividing net income by shareholders' equity.