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Chapter 14 - Accounting Notes I Chapter 14 Corporations...

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Accounting Notes I. Chapter 14: Corporations: Dividends, Retained Earnings and Income Reporting a. Cash Dividends i. Defined: 1. A pro rata distribution of cash to stockholders ii. A Corporation Must Have: 1. Retained Earnings 2. Adequate Cash 3. A Declaration of Dividends iii. Other Terms 1. Liquidating Dividend a. A dividend declared out of paid-in capital i. This amount reduces or “liquidates the amount originally paid by stockholders iv. Important Dates 1. Declaration Date a. Formal declaration by the Board of Directors b. The declaration commits the corporation to a legal obligation Retained Earnings 50,000 Dividends Payable 50,000 2. Record Date a. The company determines ownership of the outstanding shares of dividend purposes No Entry Necessary 3. Payment Date a. The company mails dividend checks to the stockholders Dividends Payable 50,000 Cash 50,000 b. Allocating Cash Dividends Between Preferred and Common Stock Retained Earnings 6,000 Dividends Payable 6,000 (To record $6 per share cash dividend to preferred stockholders) Total Dividend 50,000 Allocated to Pref. Stock Dividend in Arrears (2010) 2,000 2011 Dividend 8,000 10,000 Remainder to Common Stock 40,000 c. Stock Dividends
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i. Defined: 1. A pro rata distribution to stockholders of the corporation’s own stock a. A company issues shares of stock in a stock dividend ii. Key Points 1. A stock dividend results in a decrease in retained earnings and an increase in paid-in capital a. A stock dividend does not decrease total stockholder’s equity or total assets i. You would now own more shares of stock, but your ownership interest has not changed iii.
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