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Legal Capital is Illegal. Payment of dividends from Paid-In Capital in
Excess of Par is Legal in some States. Payment of Dividends from Retained
Earnings is Legal in All States. Companies are frequently constrained by Agreements with Lenders to Pay Dividends
only from Retained Earnings Dividends
Dividends Require Information On 3 Dates: Ex-Dividend Date–Last day to Buy/Sell
stock & affect ownership as of Record
Date. Usually, 3-days prior to Record
Date. Dividend Dates •
• Date of Declaration
Board of Directors declares the dividend.
Record a liability. On March 1, 2009, Board of Directors of Matrix, Inc.
declares a $1.00 per share cash dividend on its 500,000
common shares outstanding.
The dividend is
payable to stockholders of record on April 1,
& paid on May 1. Dividend Dates
The day which serves as the ownership cut-off
point for the receipt of the most recently declared
dividend. Usually 3 days before Record date. NO ENTRY Dividend Dates Date of Record
Stockholders holding shares on this date
will receive the dividend. (No Entry)
April 2009 X Dividend Dates Date of Payment
Record the payment of the
dividend to stockholders. Dividend Dates
$ 100 × 8% = $ 8 Dividend Per Share
$ 8 × 2,500 = $20,000 Total Dividend
On June 1, board of directors declared a dividend for the
2,500 Shares of its $100 Par Value, 8% Preferred Stock.
The dividend will be Paid On July 15. Which of the
following will be included in the July 15 Entry?
a. Debit Retained Earnings $20,000.
b. Debit Dividends Payable $20,000.
c. Credit Dividends Payable $20,000.
d. Credit Preferred Stock $20,000. Stock Dividends
Distribution of Additional Shares
of Stock to Stockholders
No Change in Total
Stockholders’ Equity No Change in Par
Values All Stockholders retain same
Percentage Ownership Dividends
Pro Rata Distribution Of Corporation’s Own Stock Results in Decrease in Retained Earnings &
Increase in Paid-In Capital. Dividends
Reasons Why Co...
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