Dividends Flashcards
Types of questions:
- Amount of dividend
- Impact on specific accounts
- Tools: Journal Entries/T-Accounts
What is a dividend payable:
Distribution of earnings, not an expense
Distribution of cash or other property to shareholders
Usually reduction to RE
What are the three dates for a cash dividends:
1) Declaration - record payable
2) Date of Record- Nothing
3) Date of payment - Cash payment
What is the journal entry on the date of declaration and date of payment
Declaration:
Dividends Declared (or Retained Earnings) DEBIT
Dividends Payable CREDIT
Payment:
Dividends Payable DEBIT
Cash CREDIT
Most common type of property dividend?
Other securities in another entity (no your own stock)
Example of Property Dividend: A firm declares a property dividend in the form of shares of stock held as an investment and account for by using fair value:
- Shares were purchased for $400,000 earlier
- Shares are now worth $430,000
What amount is the dividends payable?
What is the amount of the gain?
What is the amount of reduction?
At declaration:
Investment in stock: $30,000
Gain on investment: (30,000)
Dividends Declared (or RE) 430,000 Property dividends payable (430,000)
Payment:
Property dividends 430,000
Investment in stock (430,000)
What is a script dividend?
It’s like an IOU.
Example of Script Dividend: Company declares a dividend but doesn’t have the cash to pay the dividend- a script dividend.
URGR8 Company declares a dividend of .40 per share (10,000 shares outstanding). URG8 does not have cash to pay the dividend, so it promises to pay shareholders the dividend in 6 months, plus 10% interest.
At Declaration:
Dividends declared (or RE) 4,000
Script dividends payable (4,000)
At payament
Script dividends payable 4,000
Interest Expense 200
Cash (4,200)
What is a liquidating dividend?
When the dividend is > than retained earnings balance. If you cannot pay out of RE then you pay out of APIC.
