上财CGA班中级财务会计FA2PS1课件ch15l3.ppt

Accounting and Reporting of Stockholders’ Equity Chapter 15 Dividend distributions generally are based on accumulated profits (retained earnings). Few companies pay dividends in amounts equal to their legally available retained earnings. Why? Maintain agreements with creditors. Meet state incorporation requirements. To finance growth or expansion. To smooth out dividend payments. To build up a cushion against possible losses. Cash Dividends Board of directors vote on the declaration of cash dividends. A declared cash dividend is a liability. Companies do not declare or pay cash dividends on treasury stock. 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? Property Dividends Dividends payable in assets other than cash. Restate at fair value the property it will distribute, recognizing any gain or loss. Illustration A dividend is declared Jan. 5th and paid Jan. 25th, in bonds held as an investment; the bonds have a book value of $100,000 and a fair market value of $135,000. Liquidating Dividends Any dividend not based on earnings reduces corporate paid-in capital. Stock Dividends Issuance of own stock to stockholders on a pro rata basis, without receiving any consideration. When stock dividend is less than 20–25 percent of the common shares outstanding, company transfers fair market value from retained earnings (small stock dividend). Stock Split To reduce the market value of shares. No entry recorded for a stock split. Decrease par value and increased number of shares. Illustration HH Inc. has 5,000 shares issued and outstanding. The per share par value is $1, book value $32 and market value is $40. Stock Split and Stock Dividend Differentiated If the stock dividend is large, it has the same effect on market price as a stock split. A stock dividend of more than 20–25 percent of the number of shares previously outstanding is called a larg