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CORPORATIONS: DIVIDENDS, RETAINED EARNINGS, AND INCOME REPORTING PowerPoint PPT Presentation


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CORPORATIONS: DIVIDENDS, RETAINED EARNINGS, AND INCOME REPORTING. Prepare the entries for cash dividends and stock dividends. Identify the items reported in a retained earnings statement. Prepare and analyze a comprehensive stockholders’ equity section.

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CORPORATIONS: DIVIDENDS, RETAINED EARNINGS, AND INCOME REPORTING

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Corporations dividends retained earnings and income reporting

CORPORATIONS: DIVIDENDS, RETAINED EARNINGS, AND INCOME REPORTING


Study objectives

Prepare the entries for cash dividends and stock dividends.

Identify the items reported in a retained earnings statement.

Prepare and analyze a comprehensive stockholders’ equity section.

Describe the form and content of corporation income statements.

Compute earnings per share.

Study Objectives


Corporations dividends retained earnings and income reporting

Corporations: Dividends, Retained Earnings, and Income Reporting

Dividends

Retained Earnings

Statement Presentation and Analysis

  • Cash dividends

  • Stock dividends

  • Stock splits

  • Retained earnings restrictions

  • Prior period adjustments

  • Retained earnings statement

  • Stockholders’ Equity Presentation

  • Stockholders’ Equity Analysis

  • Income Statement Presentation

  • Income Statement Analysis


Dividends

Dividends

A distribution of cash or stock to stockholders on a pro rata (proportional) basis.

Types of Dividends:

  • Cash dividends.

  • Property dividends.

  • Script (promissory note).

  • Stock dividends.

Dividends expressed: (1) as a percentage of the par or stated value, or (2) as a dollar amount per share.

LO 1 Prepare the entries for cash dividends and stock dividends.


Dividends1

Dividends

Dividends require information concerning three dates:


Dividends2

Cash Dividends

For a corporation to pay a cash dividend, it must have:

Retained earnings - Payment of cash dividends from retained earnings is legal in all states.

Adequate cash.

A declaration of dividends by the Board of Directors.

Dividends

See page 596 - 597


Dividends3

Illustration:What would be the journal entries made by a corporation that declared a $50,000 cash dividend on March 10, payable on April 6 to shareholders of record on March 25?

Dividends

March 10 (Declaration Date)

Retained earnings 50,000

Dividends payable 50,000

March 25 (Date of Record)No entry

April 6 (Payment Date)

Dividends payable 50,000

Cash 50,000

LO 1 Prepare the entries for cash dividends and stock dividends.


Dividends4

Allocating Cash Dividends Between Preferred and Common Stock

Dividends

Holders of cumulative preferred stock must be paid any unpaid prior-year dividends before common stockholders receive dividends.

LO 1 Prepare the entries for cash dividends and stock dividends.


Dividends5

Dividends

ExerciseArnez Corporation was organized on January 1, 2008. During its first year, the corporation issued 2,000 shares of $50 par value preferred stock and 100,000 shares of $10 par value common stock. At December 31, the company declared the following cash dividends: 2008, $6,000, 2009, $12,000, and 2010, $28,000.

Instructions: (a) Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 8% and not cumulative.

LO 1 Prepare the entries for cash dividends and stock dividends.


Dividends6

Dividends

Exercise(a) Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 8% and not cumulative.

*

* 2,000 shares x $50 par x 8% = $8,000

LO 1 Prepare the entries for cash dividends and stock dividends.


Dividends7

Dividends

Exercise(b) Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 9% and cumulative.

**

*

* 2,000 shares x $50 par x 9% = $9,000

** 2008 Pfd. dividends $9,000 – declared $6,000 = $3,000

LO 1 Prepare the entries for cash dividends and stock dividends.


Dividends8

Dividends

Exercise(c) Journalize the declaration of the cash dividend at December 31, 2010, under part (b).

Journal entry:

Retained earnings 28,000

Dividends payable 28,000

See another illustration page 598 -599


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