Chapter 18: (Accounting for Dividends)
Cash dividends are declared by:
-Declared by board of directors
Stock dividends:
-Distribution of additional shares of stock to owners
Stock Split:
-Par value, Paid-In Capital, and Retained Earnings not effected in total. -No Journal Entry. -Only effect is that par value per share is reduced.
Large Stock dividend:
-Same effect on market price as a stock split. -Par value of new shares is transferred from retained earnings to capital stock account. -Total Stockholders' Equity is unchanged.
Date of Record:
-Stockholders holding shares on this date will receive the dividend. (No entry)
Ex-dividend date:
-The first day the shares trade without the right to receive the declared dividend. (No entry)
Preferred stock dividends can be both:
-cumulative or noncumulative
Small stock dividends are recorded at:
-current fair value of stock
Property dividends are recorded at:
-fair value of noncash asset
Property dividends:
_distributions of non-cash assets
Preferred stock can also be:
partially participating, fully participating, or nonparticipating
Small stock dividend:
-less than 25% the fair value of the additional shares distributed is transferred from retained earnings to paid-in capital
Large stock dividends are recorded at:
-par value of stock
The amount reclassified depends on the size of the stock dividend:
-small stock dividend -large stock dividend
Cumulative means:
-that if the specified dividend is not paid for a year, the unpaid dividends (called dividends in arrears) accumulate and must be made up in a later dividend year before any dividends are paid on common shares
Stock Split:
-to reduce the market value of shares
A liability is not recorded UNTIL a company;s board of directors:
-votes to declare a dividend
When directors declare a cash dividend:
-we reduce retained earnings and record a liability DR Retained earnings CR Dividends payable
Types of Dividends:
1. Cash dividends 2. Property dividends 3. Liquidating dividends 4. Stock dividends
Large stock dividend: At date of distribution journal entry:
DR Common Stock Dividend Distributable CR Common stock
Small stock dividend: Date of distribution journal entry:
DR Common stock dividend distributable CR Common Stock
Date of Payment: Record the dividend payment to stockholders:
DR Dividends payable CR Cash
Large stock dividend Date of declaration journal entry:
DR Retained Earnings CR Common stock dividend distributable shares distributed x % share dividend= # of shares x $ par value
Small stock dividend: Date of declaration journal entry:
DR Retained Earnings (shares x price/share) CR Common stock dividend distrinutable CR Paid-in Capital in Excess of Par-come
Small stock dividend journal entry:
DR Retained earnings CR Common Stock CR Paid-in capital