Question

A company declared cash dividends of $0.20 per share.
If there are 500,000 shares of common stock authorized, 100,000 shares issued, and 80,000 shares outstanding at the date of declaration, what is the amount that the company should record for the dividend?

A. $100,000 B. $20,000 C. $16,000 D. $4,000

Answer 1

Answer:

The correct answer is C. $16,000.

Explanation:

The shares on which dividend is to be paid are outstanding shares. Outstanding shares depicts current investment of stock holder in the company. As dividend is payment made to investor as a return on their investment, so the person entitled to receive return are current shareholders.

Dividend payment will be calculated as follow.

Total dividend paid = DPS * shares outstanding

                                 = 0.2 * 80,000

                                 = $ 16,000