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aimtobeacpa
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| Posted: 05 Oct 2010 at 00:27 | IP Logged
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in gleim MCQ in CD
i came across two MCQ's
In one it states tht declaration and payment of liquidating dividend does not affect RE.(CPA1191 II-6,gleim order question 35,equity)
and in other it states,
decreases RE..(CPA1189T-21,gleim order question 33,equity)
plz confirm...
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jsanders02
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| Posted: 05 Oct 2010 at 07:47 | IP Logged
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A liquidating dividend by definition is one in which there is not enough retained earnings to pay
the dividend, so you have to cut into additional paid in capital. The only way a "liquidating"
dividend can affect RE is if there was enough RE to pay SOME of the dividend but not all of it. In
that case, the "liquidating" portion of the dividend still does not affect RE.
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aimtobeacpa
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| Posted: 05 Oct 2010 at 10:51 | IP Logged
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thanks...tht means "decreases RE is incorrect"..
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Jack0819
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| Posted: 05 Oct 2010 at 19:18 | IP Logged
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And when the liquidating dividend is declared and received, journal entry will be
Cash xx
Investment in Investee xx ( A decrease in investment)
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1tryCPA
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| Posted: 05 Oct 2010 at 20:01 | IP Logged
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Aimtobeacpa,
the questions you mentioned are worded differently, so the answer is different.
#35: the company paid 100,000 liq div. Q: if the PIC or RE would decrease.
Answer: PIC yes; RE no: as it is liquidating dividend and takes out of PIC
#33: the company paid dividend portion of which was liquidating. Q: if PIC and RE would decrease
Yes to both. Portion of dividend that is regular decreases RE and portion of dividends that is liquidating decreases PIC.
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