What is the required journal entry when a dividend is paid out of $180,000?

When a dividend is paid, the correct journal entry requires recording the reduction in the liability associated with the previously declared dividends. When dividends are declared, they create a liability on the balance sheet. The payment of these dividends reduces that liability.

Therefore, debiting dividends payable for $180,000 is the appropriate action because it reflects the reduction of the dividend liability. This action indicates that the obligation to pay dividends has been fulfilled, moving the amount from the liabilities to a reduction in cash or other assets that were used to pay the dividends.

Recording this transaction accurately is essential for maintaining proper financial statements, as it ensures that the balance sheet reflects an accurate depiction of the company’s liabilities after the dividend payment.