Ch13

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Unformatted text preview: gnificant increases or decreases in earnings. Relevant Dates date of record (dividends) Set by the firm’s directors, the date on which all persons whose names are recorded as stockholders receive a declared dividend at a specified future time. ex dividend Period, beginning 2 business days prior to the date of record, during which a stock is sold without the right to receive the current dividend. If the directors of the firm declare a dividend, they also typically issue a statement indicating the dividend decision, the record date, and the payment date. This statement is generally quoted in the Wall Street Journal and other financial news media. Record Date All persons whose names are recorded as stockholders on the date of record set by the directors receive a declared dividend at a specified future time. These stockholders are often referred to as holders of record. Because of the time needed to make bookkeeping entries when a stock is traded, the stock begins selling ex dividend 2 business days prior to the date of record. Purchasers of a stock selling ex dividend do not receive the current dividend. A simple way to determine the first day on which the stock sells ex dividend is to subtract 2 days from the date of record; if a weekend intervenes, subtract 4 days. Ignoring general market fluctuations, the stock’s price is expected to drop by the amount of the declared dividend on the ex dividend date. CHAPTER 13 payment date Set by the firm’s directors, the actual date on which the firm mails the dividend payment to the holders of record. EXAMPLE Dividend Policy 561 Payment Date The payment date, also set by the directors, is the actual date on which the firm mails the dividend payment to the holders of record. It is generally a few weeks after the record date. An example will clarify the various dates and the accounting effects. At the quarterly dividend meeting of Rudolf Company, a distributor of office products, held on June 10, the directors declared an $0.80-per-share cash dividend for holders of record on Monday, July 1. The firm had 100,000 shares of common stock outstanding. The payment date for the dividend was August 1. Before the dividend was declared, the key accounts of the firm were as follows: Cash $200,000 Dividends payable Retained earnings $ 0 1,000,000 When the dividend was announced by the directors, $80,000 of the retained earnings ($0.80 per share 100,000 shares) was transferred to the dividends payable account. The key accounts thus became Cash $200,000 Dividends payable Retained earnings $ 80,000 920,000 Rudolf Company’s stock began selling ex dividend 2 business days prior to the date of record, which was June 27. This date was found by subtracting 4 days (a weekend intervened) from the July 1 date of record. Purchasers of Rudolf’s stock on June 26 or earlier received the rights to the dividends; those who purchased the stock on or after June 27 did not. Assuming a stable market, Rudolf’s stock price was expected to drop by approximately $0.80 per share...
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This document was uploaded on 01/19/2014.

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