# Dividends a dividend is an amount paid periodically

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Chapter 6 / Exercise 41
Applied Calculus for the Managerial, Life, and Social Sciences
Tan
Expert Verified
DividendsA dividend is an amount paid periodically by a corporation to a stockholder as a return on invested capital. Dividends represent distributions of accumulated net income. They are usually paid in cash but may also be paid in the form of noncash assets or even additional shares of a corporation’s own stock. All dividends, whatever their form, reduce retained earnings.Recognition and Payment of DividendsDeclaration date—date the corporation’s board of directors formally declares a dividend will be paidDate of record—date on which stockholders of record are identified as those who will receive a dividend
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Chapter 6 / Exercise 41
Applied Calculus for the Managerial, Life, and Social Sciences
Tan
Expert Verified
Date of payment—date when the dividend is actually distributed to stockholdersThe payment of a cash dividend is preceded by an official announcement or declaration by the board of directors of the company’s intention to pay a dividend. The dividend declaration specifies:othe declaration date—the date on which a corporation announces its intention to pay a dividend on common or preferred stockothe dollar amount of the dividend—usually stated as the number of dollars per shareothe date of record—the date on which a stockholder must own one or more shares of stock in order to receive the dividendothe payment date—the date on which the dividend will actually be paidEntries to record the declaration and payment of a \$100,000 cash dividendby a corporation follows:oDeclaration of Dividend Dividends or Retained Earnings \$100,000Dividends Payable \$100,000oPayment of DividendDividends Payable \$100,000Cash \$100,000Stock DividendsA stock dividend transfers shares of stock from the corporation to its stockholders—additional shares of the corporation’s own stock. For each share outstanding, a fixed number of new shares is issued, and an amount of retained earnings is transferred to contributed capital accounts in a process known as capitalization of retained earnings. The amount of retained earnings capitalized for each new share depends on the size of the stock dividend:.oSmall stock dividends increase the number of outstanding shares by less than 25percent; they are capitalized using the stock’s market value just before the dividend.oLarge stock dividends increase the number of outstanding shares by 25 percentor more and are capitalized at parA corporation may distribute dividends to the shareholders in the form of additional company stock. This is called a stock dividend.A stock dividend involves no transfer of cash or any other asset to stockholders. Instead, the shareholder receives new shares with added value and added ownership. Small Stock Dividend vs Large Stock DividendSmall:Less than 20–25% of the outstanding shares.
Debit Retained Earnings for the market valueof the shares immediately after the distribution of the shares.