85 Record Transactions and the Effects on Financial Statements for Cash Dividends, Property Dividends, Stock Dividends, and also Stock Splits

Do you remember playing the board game Monopoly as soon as you were younger? If you came down on the Chance room, you picked a card. The Chance card might have phelp a ?50 dividend. At the time, you most likely were simply excited for the added funds.

You are watching: The date the board of directors votes to pay a dividend is called the:


Chance Card. A Chance card from a Monopoly game shows that the financial institution pays you a dividend of ?50. (credit: change of “Monopoly Chance Card” by Kerry Ceszyk/Flickr, CC BY 4.0)

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While a few providers may use a momentary account, Dividends Declared, quite than Retained Wages, many service providers delittle Retained Salaries straight. Ultimately, any dividends claimed cause a decrease to Retained Earnings.

The second substantial dividfinish day is the day of document. The day of document determines which shareholders will get the dividends. There is no journal entry recorded; the agency creates a list of the stockholders that will certainly receive dividends.

The date of payment is the third necessary day concerned dividends. This is the date that dividend payments are all set and also sent to shareholders who owned stock on the date of document. The connected journal enattempt is a fulfillment of the duty establimelted on the declaration date; it reduces the Cash Dividends Payable account (via a debit) and the Cash account (with a credit).

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The journal enattempt to distribute the soft drinks on January 14 decreases both the Property Dividends Payable account (debit) and the Cash account (credit).

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The 5% common stock dividend will certainly need the distribution of 60,000 shares times 5%, or 3,000 added shares of stock. An investor who owns 100 shares will obtain 5 shares in the dividfinish circulation (5% × 100 shares). The journal entry to document the stock dividend declaration calls for a decrease (debit) to Retained Earnings for the industry value of the shares to be distributed: 3,000 shares × ?9, or ?27,000. An boost (credit) to the Usual Stock Dividends Distributable is videotaped for the par worth of the stock to be distributed: 3,000 × ?0.50, or ?1,500. The excess of the industry value over the par worth is reported as a boost (credit) to the More Paid-in Capital from Common Stock account in the amount of ?25,500.

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To see the results on the balance sheet, it is useful to compare the stockholders’ equity area of the balance sheet prior to and also after the little stock dividend.

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Also assume that Duratech’s board of directors declares a 30% stock dividend on the last day of the year, once the market worth of each share of stock was ?9. The 30% stock dividend will certainly call for the circulation of 60,000 shares times 30%, or 18,000 added shares of stock. An investor that owns 100 shares will get 30 shares in the dividend circulation (30% × 100 shares). The journal enattempt to record the stock dividend declaration needs a decrease (debit) to Retained Earnings and an increase (credit) to Typical Stock Dividends Distributable for the par or declared worth of the shares to be distributed: 18,000 shares × ?0.50, or ?9,000. The journal entry is:

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There is no consideration of the market value in the accounting records for a huge stock dividend bereason the variety of shares issued in a big dividfinish is big sufficient to influence the market; as such, it reasons an instant reduction of the sector price of the company’s stock.

In comparing the stockholders’ equity area of the balance sheet prior to and after the large stock dividend, we can view that the total stockholders’ equity is the exact same before and after the stock dividend, simply as it was with a small dividend ((Figure)).


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The separation frequently reasons the market price of stock to decline immediately to one-fourth of the original value—from the ?24 per share pre-break-up price to about ?6 per share post-separation (?24 ÷ 4), because the complete value of the agency did not change as a result of the split. The complete stockholders’ equity on the company’s balance sheet before and also after the separation remajor the exact same.

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Date of declaration, May 12, no enattempt.

To document the payment:

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In your first year of operations the following transactions take place for a company:

Net profit for the year is ?16,000100 shares of ?1 par worth prevalent stock are issued for ?32 per shareThe firm purchases 10 shares at ?35 per shareThe firm pays a cash dividend of ?1.50 per share

Prepare journal entries for the above transactions and carry out the balance in the following accounts: Common Stock, Dividends, Paid-in Capital, Retained Earnings, and Treasury Stock.

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Key Concepts and Summary

Dividends are a distribution of corporate revenue, though some suppliers reinvest earnings quite than declare dividends.Tbelow are three dividend dates: day of declaration, day of record, and also day of payment.Cash dividends are accounted for as a reduction of preserved income and produce a liability once declared.When dividends are declared and a company has just widespread stock issued, the reduction of kept earnings is the amount per share times the number of exceptional shares.A residential property dividfinish occurs when a company declares and also distributes assets various other than cash. They are videotaped at the fair industry value of the ascollection being dispersed.A stock dividfinish is a circulation of shares of stock to existing shareholders in lieu of a cash dividfinish.A little stock dividfinish occurs as soon as a stock dividend circulation is less than 25% of the total superior shares based upon the exceptional shares prior to the dividend circulation. The enattempt calls for a decrease to Retained Salaries for the sector value of the shares to be distributed.A huge stock dividfinish requires a circulation of stock to existing shareholders that is larger than 25% of the complete impressive shares simply prior to the distribution. The journal entry calls for a decrease to Retained Incomes and a credit to Stock Dividends Distributable for the par or stated worth of the shares to be spread.Some corporations employ stock splits to store their stock price competitive in the market. A typical stock split occurs as soon as a company’s board of directors concerns new shares to existing shareholders in location of the old shares by enhancing the number of shares and also reducing the par value of each share.

(Figure)A firm issued 40 shares of ?1 par worth common stock for ?5,000. The journal enattempt to document the transactivity would certainly include which of the following?

delittle of ?4,000 to widespread stockcrmodify of ?20,000 to widespread stockcrmodify of ?40 to prevalent stockdelittle of ?20,000 to widespread stock