12-13: RE, Dividends and Creating a SCSE Flashcards
This pertains to the cumulative balance of profits and losses, distribution to owners, affected by the effects of retrospective application or restatement and other capital adjustments.
Retained Earnings
a credit balance to Income Summary means that credits are greater than the debits, and that the results of the operation was a net _________.
income
The journal entry in closing the Income Summary account if the corporation incurs a net income.
Dr: Income Summary
Cr: Retained Earnings
_ The appropriation of retained earnings reduces the corporation’s total retained earnings and reduces the amount available for dividend distribution.
False. Appropriation of RE doesn’t reduce total retained earnings; it only decreases the amount available for dividend distribution.
Give three sources of appropriations for retained earnings.
Appropriation for…
Treasury shares (legal requirement)
Retirement of bonds (contractual)
Acquisition of plant assets (voluntary)
T/F. Even when the cause for restriction/appropriation no longer exists, the appropriation is not reversed.
F
What is the journal entry for reversing the appropriation for:
a. treasury shares
b. retirement of bonds
c. plant expansion
for (a):
Dr: Retained Earnings - Appropriated for Treasury Shares
Cr: Retained Earnings - Unappropriated / Free
for (b):
Dr: Retained Earnings - Appropriated for Bond Retirement
Cr: Retained Earnings - Unappropriated / Free
for (c):
Retained Earnings - Appropriated for Plant Expansion
Retained Earnings - Unappropriated / Free
T/F. Dividends are distributions of earnings or capital to shareholders in proportion to their shareholdings.
T
This is the date when the corporation determines who are entitled to receive dividends.
Date of Record
This is the date when the board of directors approved the resolution to distribute dividends.
Date of Declaration
T/F. A journal entry is usually prepared on the date of declaration to recognize any liability related to the dividend distribution.
T
If shares are sold after the date of declaration but before the date of record, shares are referred to as ________ __________.
selling dividend-on
Which of the following shares are entitled to receive dividends?
a. issued and outstanding shares
b. subscribed par-value shares
c. subscribed no-par value shares
d. treasury shares
(a) issued and outstanding shares and (b) subscribed par-value shares.
Dividends may either be __________ (also return on investment) or dividend out of capital (return of investment).
dividend out of earnings
Also known as scrip dividend, this consists of a promise to pay at a future date.
Liability Dividend
For this type of share dividend, the RE account is debited for the fair market value of the shares on the date of declaration.
Small Share Dividend
For this type of share dividend, the RE account is debited for the par value of the shares on the date of declaration.
Large Share Dividend
T/F. The date of distribution of cash dividends does not affect the corporation’s RE - Unappropriated account.
T. Only the total assets of the corp is reduced.
T/F. A share premium arises from the declaration of a small share (and not a not a large share) dividend.
T
Some guy declared a “1 share for every 4 shares held” share dividend to ordinary shareholders. What is the journal entry on the date of distribution if there were 8,000 outstanding shares and these had a par values of 80 per share and fair market values of 95 per share?
On the date of distribution:
Dr: Share Dividend Distributable - Ordinary for 160000
Cr: Ordinary Share Capital for 160,000
On the date of declaration of cash dividends, Liabilities will [increase / decrease].
Increase. The account title affected is Share Dividends Distributable.
T/F. A share dividend affects the shareholder’s proportionate interest in the corporation.
F. It does not affect the interest, which would remain the same before and after the declaration (p.219).
