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Chapter 15: Question 25Q (page 810)

The following comment appeared in the notes of Colorado Corporation鈥檚 annual report: 鈥淪uch distributions, representing proceeds from the sale of Sarazan, Inc., were paid in the form of partial liquidating dividends and were in lieu of a portion of the Company鈥檚 ordinary cash dividends.鈥� How would a partial liquidating dividend be accounted for in the financial records?

Short Answer

Expert verified

When a corporation declares a liquidation dividend, the retained earnings and common stock accounts are debited, and the dividend payable account is credited. Common stock is a paid-in capital expense recorded under the equity section in the balance sheet.

Step by step solution

01

Meaning of Liquidating dividend

A liquidating dividend is a payout paid as part of a company's liquidation procedure. Liquidation is the process of corporation ceasing operations and exiting the market. Liquidation can take place either voluntarily or involuntarily (forced).

02

Explaining how a partial Liquidating Dividend be accounted for in the financial records

A partially liquidated dividend will debit both Retained Earnings and Paid-in Capital in Excess of Par. Dividends that are a capital return should be deducted from Paid-in Capital in Excess of Par.

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Most popular questions from this chapter

Weisberg Corporation has 10,000 shares of \(100 par value, 6%, preference shares and 50,000 ordinary shares of \)10 par value outstanding at December 31, 2017.

Instructions

Answer the questions in each of the following independent situations.

  1. If the preference shares are cumulative and dividends were last paid on the preference shares on December 31, 2014, what are the dividends in arrears that should be reported on the December 31, 2017, statement of financial position? How should these dividends be reported?
  2. If the preference shares are convertible into seven shares of \(10 par value ordinary shares and 3,000 shares are converted, what entry is required for the conversion, assuming the preference shares were issued at par value?
  3. If the preference shares were issued at \)107 per share, how should the preference shares be reported in the equity section?

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

What features or rights may alter the character of preferred stock?

(Issuance of Stock for Land) Martin Corporation is planning to issue 3,000 shares of its own $10 par value common stock for two acres of land to be used as a building site.

Instructions

  1. What general rule should be applied to determine the amount at which the land should be recorded?
  2. Under what circumstances should this transaction be recorded at the fair value of the land?
  3. Under what circumstances should this transaction be recorded at the fair value of the stock issued?
  4. Assume Martin intentionally records this transaction at an amount greater than the fair value of the land and the stock. Discuss this situation.

This comment appeared in the annual report of MacCloud Inc.: 鈥淭he Company could pay cash or property dividends on the Class A common stock without paying cash or property dividends on the Class B common stock. But if the Company pays any cash or property dividends on the Class B common stock, it would be required to pay at least the same dividend on the Class A common stock.鈥� How is a property dividend accounted for in the financial records?
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