divyagovil1
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Location: India
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| Posted: 02 Nov 2011 at 06:51 | IP Logged
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Cash dividends (usually referred to as
"dividends") are a distribution of the corporation's net
income.
Example:
On March 15 a board of directors approves a motion
directing the corporation to pay its regular quarterly
dividend of $0.40 per share on May 1 to stockholders of
record on April 15. The following entry is made on the
declaration date of March 15 assuming that 2,000 shares
of common stock are outstanding:
J/E:
Retained Earnings (2,000 X $0.40)800
Dividends Payable 800
On May 1, when the dividends are paid, the following
journal entry is made.
J/E:
Dividends Payable 800
Cash 800
Stock Dividends
A stock dividend does not involve cash. Rather, it is the
distribution of more shares of the corporation's stock.
1. Small stock dividend. A stock dividend is
considered to be small if the new shares being issued are
less than 20-25% of the total number of shares
outstanding prior to the stock dividend.
On the declaration date of a small stock dividend, a
journal entry is made to transfer the market value of the
shares being issued from retained earnings to the paid-in
capital section of stockholders' equity.
Example:
O/S Shares of common stock 2000
Stock Dividend declared 5%
Par value $5 per share
Mkt value $12 per share
J/E 1 - on the declaration date:
Debit Retained Earnings (100 shares * $12) 1200
Credit Common Stock Dividend Distributable(100 shares *
$5 per share)500
Credit Paid-in-capital in excess of par 700
J/E 2 – when shares are distributed to the shareholders:
Debit Common Stock Dividend Distributable 500
Credit Common Stock 500
2. Large stock dividend. A stock dividend is
considered to be large if the new shares being issued are
more than 20-25% of the total value of shares outstanding
prior to the stock dividend.
On the declaration date of a large stock dividend, a
journal entry is made to transfer the par value of the
shares being issued from retained earnings to the common
stock section of stockholders' equity.
Example:
O/S Shares of common stock 2000
Stock Dividend declared 50%
Par value $5 per share
Mkt value $12 per share
J/E 1 - on the declaration date:
Debit Retained Earnings (100 shares * $5) 500
Credit Common Stock Dividend Distributable 500
J/E 2 – when shares are distributed to the shareholders:
Debit Common Stock Dividend Distributable 500
Credit Common Stock 500
__________________
Divya - CO State
Passed using Becker Review :
FAR - 04/11/09 - 94
BEC - 05/30/09 - 86
REG - 08/29/09 - 95
AUD - 11/21/09 - 92
Ethics - 2011
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Topic: Cash Dividend and Stock Dividend
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