ACC 206 Week 1 Discussions 2 9th ed

ACC 206 Week 1 Discussions 2 9th ed - 2. How is each...

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ACC 206 Week 1 Discussions 2  9 th  ed Retained Earnings and the Income  Effects on Retained Earnings and the Income Statement 1. Discuss cash dividends and stock dividends.  a. Cash Dividends are a distribution of a firm’s net operating income. Dividends are  analogous to draws and withdrawals by the owner of a sole proprietorship. As  such, dividends are not expenses and do not appear on the corporation's income  statement. b. Stock Dividends do not involve cash. Instead, a stock dividend is the distribution  of more shares of the corporation's stock. For example, if the board of directors  approves a 20% stock dividend, each stockholder will get an additional share for  each 20 shares held.
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Unformatted text preview: 2. How is each recorded? a. Both Cash Dividends and Stock Dividends are recorded as a reduction of Retained earnings. A Cash Dividend is recorded with a Debit to Retained Earnings and a credit to Cash. A Stock Dividend is recorded with a Debit to Retained Earnings and a credit to Common and/or Preferred Stock. 3. When each is issued, what is the affect on assets, liabilities and owner’s equity? a. Cash Dividends decrease assets (Cash) and decrease equity (Retained Earnings) b. Stock Dividends decrease equity (Stock) and increase equity (Retained Earnings), resulting in no net change....
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This note was uploaded on 03/29/2012 for the course ACC 206 taught by Professor Gilbert during the Spring '12 term at DeVry Houston.

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