F1-M4 Stockholder's Equity: Part 2

Question 1

List the significant dates with respect to cash dividends

Answer 1

1. Date of Declaration: Becomes a liability and reduces retained earnings
   2.Date of Record: No journel entry, memorandum entry only
   3.Date of Payment: Actually Paid

Question 2

List five types of dividends

Answer 2

1. Cash
2. Liquidating: Return of Investment
3. Property: FMV of assets given up, with gain/loss recognized
4. Scrip: Promise to pay a dividend in future
5. Stock: Results in capitalizing part of retained earnings, increasing legal capital. Remember, if <20%-25%, record at market value; if >20-25%, record at par value.

Question 3

What is the threshold for treating stock dividends as large vs. small stock dividends?

Answer 3

Small stock dividend: <20%-25%
Large stock dividend: >20%-25%

The treatment of stock dividends depends on the percentage of the dividend in proportion to the total shares outstanding prior to the declaration of the dividend.

Question 4

What is the accounting treatment of small stock dividends

Answer 4

Fair value of additional shares issued at the date of declaration is transferred from retained earnings to capital stock and additional paid-in-capital

Question 5

What is the accounting treatment of large stock dividends

Answer 5

Par value of additional shares issued is transferred from retained earnings to capital stock