Affects of declaring dividends and liquidating christian cooke dating


When a corporation declares a cash dividend on its stock, its retained earnings are decreased and its current liabilities (Dividends Payable) are increased.

When the cash dividend is paid, the Dividends Payable account is decreased and the corporation's Cash account is decreased.

The income statement is not affected by the declaration and payment of cash dividends on common stock.

(The cash dividends on preferred stock are deducted from net income to arrive at net income available for common stock.) The cash dividends will be reported as a use of cash in the financing activities section of the statement of cash flows.

They are treated as a reduction of contributed capital, either additional paid-in-capital or a special contracontributed capital account, designated as “Contributed Capital Distributed” as a “Liquidating Dividend”. Common Stock Dividend Distributable = 300,000 At the time of distribution the following journal entry is required: [Debit].


Retained Earnings [Cash Dividend Declared] = 2,000,000 [Credit]. Date of record, April 15, 2009 Memorandum entry that the firm will pay a dividend to all stockholders of record as of today, the date of record. Retained Earnings [Property Dividend Declared] = 0,00 [Credit]. The accounting treatment at the date of declaration consists of debiting retained earnings or scrip dividends declared and crediting notes payable to stockholders or scrip dividend payable. Retained Earnings [Scrip Dividends Declared] = 3,000,000 [Credit]. The transaction is made by a capitalization of retained earnings resulting in a reduction of retained earnings and an increase in some contributed capital accounts. Additional Paid-in-Capital from Stock Dividend 30,000 2. Common Stock Dividend Distribution = 120,000 [Credit].

Common Stock, par = 300,000 Following the issuance the stockholder’s equity is as follows: Common Stock, [ par x 45,000] = $ 900,000 Additional Paid-in-Capital = 300,000 Total Stockholder’s Equity = 1,500,000 Note that the large stock dividend is treated as a stock split, that is, a split-up effected in the form of a dividend.

Decrease in retained earnings follows the distribution of dividends. Let’s assume that the Lie Dharma Corporation, on March 15, 2009, declared a cash dividend of per share on 2,000,000 shares payable June 1, 2009, to all stockholders of record April 15. At the date of distribution, the firm debits the note payable or scrip payable, and the related interest expense and credit cash. Notes Payable to Stockholders [Scrip Dividends Payable] = 3,000,000 [ x 3,000,000] 2. No corporate assets are distributed; the value of the total stockholder’s equity remains unchanged as well as each stockholder’s percentage ownership in the firm. Common Stock, par = 120,000 Following the issuance the stockholder’s equity is as follows: Common Stock, par [36,000 shares issued and outstanding] = $ 720,000 Additional Paid-in-Capital = 330,000 Total Stockholders’ Equity = ,500,000 Let’s now assume that the firm issued instead a 50% stock dividend.

The types of dividends include [1] cash, [2] property, [3] scrip, [4] liquidating, and [5] stock. Let’s assume that the Hugo Company declared, on June 17, 2009, a scrip dividend in the form of a three-month promissory note amount to a share on 3,000,000 shares outstanding. At the date of payment, September 17, 2009 [Debit]. Interest Expense = 75,000 [,000,000 x 0.10 x 3/12] [Credit]. To illustrate the accounting for small stock dividend, let’s assume a corporation that has the following stockholder’s equity prior to the issuance of a small stock dividend: Common Stock, par [30,000 shares issued and outstanding] = $ 600,000 Additional Paid-in-Capital = 300,000 Total Stockholder’s Equity = ,500,000 Let’s also assume that the firm issued a 20% stock dividend on a date where the stock was selling at per share. The following journal entries are required at the time of declaration: [Debit].


The net result of the declaration and payment of the dividend is that the corporation's assets and stockholders' equity have decreased.

Specifically, the balance sheet accounts Cash and Retained Earnings were decreased.


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