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Chapter 15: Q12E. (page 814)

(Cash Dividend and Liquidating Dividend) Lotoya Davis Corporation has 10 million shares of common stock issued and outstanding. On June 1, the board of directors voted an 80 cents per share cash dividend to stockholders of record as of June 14, payable June 3

Instructions

  1. Prepare the journal entry for each of the dates above, assuming the dividend represents a distribution of earnings.
  2. How would the entry differ if the dividend were a liquidating dividend?

Short Answer

Expert verified

Total Dividend Paid: $8,000,000

Step by step solution

01

Meaning of Dividend

A dividend is given to the shareholders from the company profit and retained earnings. After ascertaining profit and accumulating retained earnings, a company pays dividend according to the value of the share a shareholder hold.

02

Preparing Journal Entries

S.no.

Particular

Debit $

Credit $

June 1

Retained Earnings

8,000,000

Dividend payable

8,000,000

To record the issue of dividends.

June 14

No Entry on date of record

June 30

Dividend Payable

8,000,000

Cash

8,000,000

To record the payment of dividends.

03

Explaining the difference in entries if the dividend were liquidating dividend

If there were a liquidating dividend, the debit entry on the date of declaration would be to additional Paid-in Capital rather than Retained Earnings.

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Most popular questions from this chapter

Indicate how each of the following accounts should be classified in the stockholders鈥� equity section.

  1. Common Stock.
  2. Retained Earnings.
  3. Paid-in Capital in Excess of Par鈥擟ommon Stock.
  4. Treasury Stock.
  5. Paid-in Capital from Treasury Stock.
  6. Paid-in Capital in Excess of Stated Value鈥擟ommon Stock.
  7. Preferred Stock.

The following note related to stockholders鈥� equity was reported in Wiebold, Inc.鈥檚 annual report.

On February 1, the Board of Directors declared a 3-for-2 stock split, distributed on February 22 to shareholders of record on February 10. Accordingly, all numbers of common shares, except unissued shares and treasury shares, and all per share data have been restated to reflect this stock split.

On the basis of amounts declared and paid, the annualized quarterly dividends per share were \(0.80 in the current year and \)0.75 in the prior year.

Instructions

  1. What is the significance of the date of record and the date of distribution?
  2. Why might Wiebold have declared a 3-for-2 for a stock split?
  3. What impact does Wiebold鈥檚 stock split have on (1) total stockholders鈥� equity, (2) total par value, (3) outstanding shares, and (4) book value per share?

(Dividends and Stockholders鈥� Equity Section) Anne Cleves Company reported the following amounts in the stockholders鈥� equity section of its December 31, 2016, balance sheet.

Preferred stock, 10%, \(100 par (10,000 shares authorized, 2,000 shares issued)

\)200,000

Common stock, \(5 par (100,000 shares authorized, 20,000 shares issued)

100,000

Additional paid-in capital

125,000

Retained earnings

450,000

Total

\)875,000

During 2017, Cleves took part in the following transactions concerning stockholders鈥� equity.

  1. Paid the annual 2016 \(10 per share dividend on preferred stock and a \)2 per share dividend on common stock. These dividends had been declared on December 31, 2016.
  2. Purchased 1,700 shares of its own outstanding common stock for \(40 per share. Cleves uses the cost method.
  3. Reissued 700 treasury shares for land valued at \)30,000.
  4. Issued 500 shares of preferred stock at \(105 per share.
  5. Declared a 10% stock dividend on the outstanding common stock when the stock is selling for \)45 per share.
  6. Issued the stock dividend.
  7. Declared the annual 2017 \(10 per share dividend on preferred stock and the \)2 per share dividend on common stock. These dividends are payable in 2018.

Instructions

  1. Prepare journal entries to record the transactions described above.
  2. Prepare the December 31, 2017, stockholders鈥� equity section. Assume 2017 net income was $330,000.

Describe the accounting entry for a stock dividend, if any. Describe the accounting entry for a stock split, if any.

Green Day Corporation has outstanding 400,000 shares of \(10 par value common stock. The corporation declares a 5% stock dividend when the fair value of the stock is \)65 per share. Prepare the journal entries for Green Day Corporation for both the date of declaration and the date of distribution.
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