Affects of declaring dividends and liquidating
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With the exception of stock dividends, all the other dividends reduce the stockholder’s equity in the corporation. Cash = 3,075,000 Dividends paid based on other than retained earnings are called “liquidating dividends”, as a return of contributed capital rather than a distribution of retained earnings. Retained Earnings 50% [30,000 share x ] = 300,000 [Credit].
Retained Earnings [Cash Dividend Declared] = 2,000,000 [Credit]. Date of record, April 15, 2009 Memorandum entry that the firm will pay a dividend to all stockholders of record as of today, the date of record. Retained Earnings [Property Dividend Declared] = 0,00 [Credit]. The accounting treatment at the date of declaration consists of debiting retained earnings or scrip dividends declared and crediting notes payable to stockholders or scrip dividend payable. Retained Earnings [Scrip Dividends Declared] = 3,000,000 [Credit]. The transaction is made by a capitalization of retained earnings resulting in a reduction of retained earnings and an increase in some contributed capital accounts. Additional Paid-in-Capital from Stock Dividend 30,000 2. Common Stock Dividend Distribution = 120,000 [Credit].
A liquidating cash dividend, on the other hand, occurs when the company doesnt have enough profits or built up retained earnings to fund a cash distribution.
Its called a liquidating dividend because it takes money out of the company without sufficiently replenishing it with profits.
The accounting entries would be this: Payment of cash dividends reduces the company's cash balance as well as retained earnings.
A property dividend represents a non-cash alternative to dividend payment, and investment securities are the usual tool used.
In some cases, shareholders receive periodic dividends from the earnings of the company.The net result of the declaration and payment of the dividend is that the corporation's assets and stockholders' equity have decreased.Specifically, the balance sheet accounts Cash and Retained Earnings were decreased.The income statement is not affected by the declaration and payment of cash dividends on common stock.
(The cash dividends on preferred stock are deducted from net income to arrive at net income available for common stock.) The cash dividends will be reported as a use of cash in the financing activities section of the statement of cash flows.Once the dividend is declared, the corporation has a liability to make that payment.