11.3 Dividends & Stock Split Flashcards
what does pro rata mean
proportional to ownership
what are 3 ways to reimburse shareholders
cash dividends
stock dividend
stock split
who receives cash dividends first
preferred sharehodlers
what are the 2 criteria company has to meet before paying dividends
1) suffiecient cash or resources to be able to pay its liabilities as they become due after dividend is declared and paid
- nrv of assets > total liabilties & share capital
formula for retained earnings
re at begin of period +net income - div decl= re at end of period
what are 3 important dates for cash dividends
- declaration date
- record date
- payment date
JE for div declarations
dr Dividends Declared
cr div payable
is div declared reported on statement of comp income?
what does this account reduce @ end of fiscal year
not reported
retained earnings
what type of acc is div payable
current laibility
what is the JE for cash dividend record date
no entry
cuz corporation liability that was recognized on declaration date is unchanged
what is the je for payment date
Dr Div payable
cr cash
what is the affect on
ASSET
LAIBILITY
SHARE CAPITAL
RE
cuz of declartion date
NE
+
NE
-
what is the affect on
ASSET
LAIBILITY
SHARE CAPITAL
RE
cuz of RECORD date
NE
NE
NE
NE
what is the affect on
ASSET
LAIBILITY
SHARE CAPITAL
RE
cuz of PAYMENT date
NE
NE
what is the affect on
ASSET
LAIBILITY
SHARE CAPITAL
RE
cuz of cumulative effect of cash dividend
-
NE
NE
-
What are stock dividends
when company distributes shares rather than cash to stakeholder
NOT COMMON IN CANDA
Why do companies wanna do stock dividedns
cuz no effect on assets, liabilities or se
only affect share capital cuz either common or preffered share increases`
Because a stock dividend does not result in a distribution of assets, investors are not actually receiving anything they did not already own. In a sense, it is like asking for two pieces of pie instead of one piece and having your host take one piece of pie and cut it into two smaller pieces. You now have two pieces of pie, but you still have the same amount of pie.
pros of stock dividend- for company
- satisfying shareholders dividend expectation while conserving cash
- increase marketability of shares (share price decrease cuz supply and demand)
- emplasize portion of SE has been permanently reinvested to legal capital and unaviable for dividends
Because of its effects, a stock dividend is often referred to as capitalizing retained earnings.
3 key dates of stock dividends
declaration date
record date
distribution date
stock dividends be recorded at fair value (market price per share
stock dividends be recorded at fair value (market price per share
what is the je for declaration date of stock dividends
Dr dividends declared
CR stock dividends distributable
what tpe of accoutn is stock dividends distributablw
SHAREHOLDERS EQUITY!! NOT LIABILITY
what is the JE for record date of stock divdends
no entry
what is the je for the distribution date of stock dividends
dr sok dividends distributable
cr common shares
what is a stock split
increasing number of shares to boost stock liquidity
primary purpose of stock split
increase marketability of shares by lowering share price
, stock splits usually result in significantly more shares being issued than stock dividends do. For example, a stock dividend might result in an additional 10% of common shares issued, whereas a stock split could result in 100% more common shares issued.
what type of share is split usually
only common shares!!! preferered shares are purchased for the dividend income and values dont rise
in efficient market, what does a 2 for 1 stock split do to shares
double shares, half prices
Regardless of the number of shares split, as is the case with a stock dividend, theoretically a shareholder should be no worse orbetter off after a stock split.
due to increased investor interest, the share price will climb more rapidly, because stock splits are usually done for shares that have grown significantly in value. Many investors think that stock splits are indicative of more growth.
stock splits have NO EFFECT ON TOTAL SHARE CAPITAL, RE OR TOTAL SE
i
how to do je for stock split
NO JE is required, only a memo entry explaining the effect of the split (That is the increase in the number of shares)
cash dividend impact on
A
L
Share capital
RE
TOTAL SE
NUMBER OF SHARES
-
NE
NE
-
-
NE
STOCK dividend impact on
A
L
Share capital
RE
TOTAL SE
NUMBER OF SHARES
ne
ne
+
-
ne
+
stock split impact on
A
L
Share capital
RE
TOTAL SE
NUMBER OF SHARES
ne
ne
ne
ne
ne
+
Cash dividends reduce cash when paid and reduce the balance in the Retained Earnings account (after the Dividends Declared account is closed into Retained Earnings
Stock dividends increase share capital, usually the Common Shares account, when distributed and decrease retained earnings when the Dividends Declared account is closed
Stock splits do not affect any of the accounts.Both stock dividends and stock splits increase the number of shares issued.
Stock splits do not affect any of the accounts.Both stock dividends and stock splits increase the number of shares issued.
