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Chapter 11: Problem 18

Where do the following accounts (and their balances) appear in the balance sheet? a. Dividends Payable-Common Stock b. Stock Dividend Distributable

Short Answer

Expert verified
a. Current Liabilities; b. Stockholders' Equity.

Step by step solution

01

Understanding Dividends Payable

Dividends Payable is a liability account. Dividends that are declared by the company's board of directors but not yet paid to shareholders are recorded in this account. Since it represents an obligation to pay, it appears in the Current Liabilities section of the balance sheet.
02

Understanding Stock Dividend Distributable

Stock Dividend Distributable is not a liability but rather part of equity. It reflects the value of shares that will soon be issued as a dividend. Therefore, it appears in the Stockholders' Equity section under the heading of Additional Paid-in Capital or similar.

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Dividends Payable
Dividends Payable is an important part of a company's financial obligations. This account captures the amount a company owes to its shareholders for dividends that have been declared but not yet paid. Essentially, it represents a promise made by the company to distribute a portion of its earnings to shareholders. As with any debt or obligation, it falls under the category of liabilities. You鈥檒l find Dividends Payable listed in the Current Liabilities section of the balance sheet because it is typically expected to be paid within the accounting year.
  • It indicates the company has committed to paying its shareholders.
  • It impacts the liquidity as cash outflows are inevitable soon.
  • Investors often watch this closely to assess a company鈥檚 cash commitment to paying dividends.
Understanding this account helps in evaluating a company's short-term financial responsibilities.
Stock Dividend Distributable
A Stock Dividend Distributable refers to shares that a company plans to distribute as dividends to its shareholders. It may seem like a liability because the company "owes" these shares, but it鈥檚 not. Instead, it reflects an upcoming distribution of additional shares of stock, hence it is recorded as part of Stockholders' Equity. Specifically, it appears under sections such as Additional Paid-in Capital or the capital stock categories.
  • This account is equity because it involves no current cash outflow.
  • It signals potential dilution of share value because more shares will soon be in circulation.
  • Such distributions can help retain earnings in the company instead of immediate cash outlay.
This account effectively transitions parts of retained earnings to contributed capital when these shares are issued.
Current Liabilities
Current Liabilities reflect obligations a company must fulfill within a year. This category includes debts or financial obligations that a company owes to others, including Dividends Payable.
The primary feature of current liabilities is their short-term nature, implying these must be settled from existing assets or by creating other current liabilities. Having high current liabilities compared to current assets could indicate liquidity risks.
  • Include accounts like Dividends Payable, Accounts Payable, and short-term loans.
  • A crucial part of working capital management.
  • Helps investors measure a company鈥檚 ability to pay off its short-term obligations.
Understanding current liabilities is crucial for assessing a company鈥檚 financial health and its capacity to meet upcoming commitments.
Stockholders' Equity
Stockholders' Equity represents the ownership interest of shareholders in the company. It comprises share capital, retained earnings, and sometimes accounts like Stock Dividend Distributable when shares are pending issuance.
This section of the balance sheet reflects the net worth of a company from an ownership perspective. It is calculated as total assets minus total liabilities. A healthy Stockholders' Equity position often indicates a solid capital base, enabling growth and investment.
  • Includes common stock, preferred stock, paid-in capital, and retained earnings.
  • Reflects the value left for shareholders if all assets were liquidated and liabilities paid off.
  • Can indicate financial stability and is often scrutinized by investors for investment decisions.
By analyzing Stockholders' Equity, one can understand the financial strategies of a company, such as dividend policies and reinvestment strategies.

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Most popular questions from this chapter

Assume that a corporation has preferred shares outstanding. How is the return on common stockholders equity computed?

A dividend that is paid every quarter or every year is called? a. Regular dividend b. Special dividend c. Property dividend d. Stock dividend

Share Issuance for Cash Minaret, Inc., issued 10,000 shares of \(\$ 50\) par value preferred stock at \(\$ 68\) per share and 12,000 shares of no-par value common stock at \(\$ 15\) per share. The common stock has no stated value. All issuance were for cash. a. Prepare the journal entries to record the share issuance. b. Prepare the journal entry for the issuance of the common stock assuming that it had a stated value of \(\$ 4\) per share. c. Prepare the journal entry for the issuance of the common stock assuming that it had a par value of \$2 per share.

Dividend Distribution Ryan Corporation began business on March 1, 2016. At that time, it issued 20,000 shares of \(\$ 60\) par value, seven percent cumulative preferred stock and 100,000 shares of \(\$ 5\) par value common stock. Through the end of 2018 , there had been no change in the number of preferred and common shares outstanding. Required a. Assume that Ryan declared dividends of \(\$ 0\) in \(2016, \$ 195,000\) in 2017 , and \(\$ 200,000\) in 2018 . Calculate the total dividends and the dividends per share paid to each class of stock in 2016 , 2017, and \(2018 .\) b. Assume that Ryan declared dividends of \(\$ 0\) in \(2016, \$ 90,000\) in 2017 , and \(\$ 190,000\) in 2018 . Calculate the total dividends and the dividends per share paid to each class of stock in 2016 , 2017, and \(2018 .\)

Stockholders' Equity: Transactions and Balance Sheet Presentation Baker Corporation was organized on July 1, with an authorization of 50,000 shares of \(\$ 5\) no-par value preferred stock ( \(\$ 5\) is the annual dividend) and 100,000 shares of \(\$ 10\) par value common stock. During July, the following transactions affecting stockholders' equity occurred: \(\begin{aligned} \text { July } 1 & \text { Issued } 62,000 \text { shares of common stock at } \$ 21 \text { cash per share. } \\ 12 \text { Issued } 7,000 \text { shares of common stock in exchange for equipment with a fair } \\\ \text { value of } \$ 71,000 \text {. } \\ 15 \text { Issued } 10,000 \text { shares of preferred stock for cash at } \$ 40 \text { per share. } \end{aligned}\) Required a. Prepare journal entries to record the foregoing transactions. b. Prepare the stockholders' equity section of the balance sheet at July 31 . The net income for July is \(\$ 52,000\).
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