005 Dividends

Question 1

Define “liquidating dividends”.

Answer 1

1. A return of capital, rather than a return on capital; 2. Reduces contributed capital account instead of retained earnings

Question 2

List the entry to record a scrip dividend payment.

Answer 2

DR: Scrip dividend payable
DR: Interest expense
CR: Cash

Question 3

List the journal entry to record a scrip dividend declaration.

Answer 3

DR: Retained earnings

CR: Scrip dividend payable

Question 4

Define “scrip dividend”.

Answer 4

A dividend in the form of an interest bearing note payable.

Question 5

What types of dividends require establishing a liability?

Answer 5

Those dividends involving a distribution of assets.

Question 6

On what date are dividend liabilities established?

Answer 6

Declaration date.

Question 7

List the journal entries to record cash dividend declaration and payment.

Answer 7

DR: Retained Earnings (or Dividends)
CR: Dividends Payable

DR: Dividends Payable
CR: Cash

Question 8

List the journal entry to record declaration of property dividends (assuming asset fair value exceeds book value).

Answer 8

DR: Retained Earnings (at FMV at declaration date)
DR: Asset (FMV - book value)
CR: Dividends Payable (FMV)
CR: Gain on Disposal (FMV - book value)

Question 9

List the journal entry to record payment of property dividend.

Answer 9

DR: Dividends Payable

CR: Cash or Asset