85 document Transactions and also the effects on financial Statements because that Cash Dividends, property Dividends, stock Dividends, and Stock Splits

Do girlfriend remember playing the board game monopoly when you to be younger? If you landed on the possibility space, you choose a card. The chance card may have actually paid a ?50 dividend. In ~ the time, you probably were simply excited because that the added funds.

You are watching: Stocks that pay relatively large cash dividends on a regular basis are called:

Chance Card. A opportunity card from a monopoly game suggests that the bank pays friend a dividend that ?50. (credit: change of “Monopoly chance Card” through Kerry Ceszyk/Flickr, CC by 4.0)


While a couple of companies may use a short-lived account, dividends Declared, quite than retained Earnings, most companies debit Retained earnings directly. Ultimately, any dividends declared cause a diminish to maintained Earnings.

The second significant dividend day is the date of record. The day of document determines which shareholder will get the dividends. There is no journal entry recorded; the firm creates a list of the stockholders the will receive dividends.

The date of payment is the 3rd important day related to dividends. This is the day that dividend payments are prepared and also sent come shareholders who owned stock on the date of record. The connected journal entry is a fulfillment that the obligation developed on the statements date; the reduces the Cash dividends Payable account (with a debit) and also the Cash account (with a credit).


The newspaper entry to distribute the soft drinks on January 14 decreases both the residential property Dividends Payable account (debit) and also the Cash account (credit).


The 5% common stock dividend will require the distribution of 60,000 shares times 5%, or 3,000 extr shares the stock. One investor that owns 100 shares will get 5 share in the dividend circulation (5% × 100 shares). The newspaper entry to document the stock dividend declaration calls for a diminish (debit) come Retained earnings for the market value the the shares to be distributed: 3,000 shares × ?9, or ?27,000. An increase (credit) come the common Stock dividends Distributable is tape-recorded for the par worth of the stock to be distributed: 3,000 × ?0.50, or ?1,500. The overfill of the industry value over the par value is reported as rise (credit) come the added Paid-in funding from usual Stock account in the lot of ?25,500.


To watch the effects on the balance sheet, it is valuable to compare the stockholders’ equity section of the balance sheet before and also after the small stock dividend.


Also assume that Duratech’s board of director declares a 30% stock dividend top top the last day that the year, as soon as the industry value of each share that stock to be ?9. The 30% stock dividend will require the distribution of 60,000 shares time 30%, or 18,000 extr shares the stock. One investor who owns 100 share will obtain 30 share in the dividend distribution (30% × 100 shares). The journal entry to record the stock dividend declaration requires a diminish (debit) come Retained income and rise (credit) to usual Stock dividends Distributable for the par or stated value that the shares to it is in distributed: 18,000 shares × ?0.50, or ?9,000. The journal entry is:


There is no consideration of the sector value in the bookkeeping records because that a large stock dividend because the variety of shares issued in a huge dividend is large enough to impact the market; together such, it reasons an prompt reduction the the market price that the that company stock.

In comparing the stockholders’ equity ar of the balance sheet before and also after the huge stock dividend, we deserve to see that the complete stockholders’ equity is the same before and also after the stock dividend, just as it was through a small dividend ((Figure)).


The break-up typically causes the sector price of stock to decrease immediately come one-fourth of the original value—from the ?24 every share pre-split price to approximately ?6 every share post-split (?24 ÷ 4), because the complete value the the firm did not adjust as a an outcome of the split. The full stockholders’ equity on the company’s balance sheet before and after the break-up remain the same.


Date of declaration, may 12, no entry.

To record the payment:


In your very first year of work the adhering to transactions take place for a company:

Net profit for the year is ?16,000100 shares of ?1 par value typical stock room issued for ?32 every shareThe company purchases 10 share at ?35 every shareThe company pays a cash dividend the ?1.50 per share

Prepare journal entries because that the over transactions and provide the balance in the adhering to accounts: common Stock, Dividends, Paid-in Capital, retained Earnings, and also Treasury Stock.

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Key Concepts and Summary

Dividends room a distribution of that company earnings, despite some providers reinvest income rather 보다 declare dividends.There space three dividend dates: date of declaration, day of record, and also date the payment.Cash dividends space accounted for together a palliation of retained earnings and also create a liability as soon as declared.When dividends room declared and a firm has only typical stock issued, the reduction of retained revenue is the amount every share time the variety of outstanding shares.A home dividend occurs when a company declares and distributes assets various other than cash. They are videotaped at the fair market value the the asset gift distributed.A stock dividend is a distribution of share of stock to existing shareholder in lieu of a cash dividend.A small stock dividend occurs once a stock dividend distribution is much less than 25% of the complete outstanding shares based on the exceptional shares prior to the dividend distribution. The entry requires a decrease to Retained income for the sector value of the share to it is in distributed.A huge stock dividend entails a distribution of stock to currently shareholders the is bigger than 25% of the full outstanding shares just before the distribution. The newspaper entry requires a decrease to preserved Earnings and a credit to stock Dividends Distributable for the par or declared value of the shares to it is in distributed.Some companies employ stock splits to keep their stock price vain in the market. A classic stock break-up occurs when a company’s board of directors issues brand-new shares come existing shareholders in place of the old shares by enhancing the number of shares and also reducing the par worth of every share.

(Figure)A firm issued 40 shares of ?1 par value typical stock because that ?5,000. The journal entry to record the transaction would encompass which the the following?

debit the ?4,000 to common stockcredit the ?20,000 to usual stockcredit the ?40 to common stockdebit the ?20,000 to usual stock