When the board of directors issues, or "declares" dividends, the accounting effect is a reduction in the retained earnings balance and an increase in the liability account "dividends payable." When the dividends are paid, the liability is removed from the company's books and the cash balance is reduced. The journal entry to record the declaration on July 18 is as follows: Debit Retained Earnings 7,632 Credit Dividends Payable 7,632 When the cash payment is made to the corporation's shareholders on Sept.Assume that a company's board of directors announces a dividend on common stock in the amount of .18 per share on July 18. 3, the company's accountant will make this journal entry: Debit Dividends Payable 7,632 Credit Cash 7,632 Notice that retained earnings is impacted not at the time of payment, but at the time the dividends were declared -- July 18. She is a Certified Public Accountant with over 10 years of accounting and finance experience.However, the price increase is the result of positive signals of favorable prospects for earnings and dividends, not a desire for stock splits or dividends per se. The number of shares owned by each individual investor will double. Without good earnings or dividends news in the next few months, the stock price will fall back to the earlier level. Disadvantages for shareholders: Stock Splits and Stock Dividends There is a belief that there is an optimal price range for every share.This is the price for the share when the price/earnings ratio and hence the company's value is maximized. Stock dividends used on a regular basis will keep stock prices more or less constrained. Barklay Franton's firm is an all-equity firm that has earnings before tax of 0,000 and 20,000 shares of stock outstanding, with each share being worth 0. Each of the following transactions has the effect of reducing retained earnings except ______. However, small stock dividends create bookkeeping problems and unnecessary expenses. Assume that you own 2,000 shares, there are no taxes, and capital markets are perfect. How could you transact on your own initiative to pay yourself a dividend of per share?
Helstrom attended Southern Illinois University at Carbondale and has her Bachelor of Science in accounting.
describe regular cash dividends, extra dividends, liquidating dividends, stock dividends, stock splits, and reverse stock splits, including their expected effect on shareholders' wealth and a company's financial ratios; Firms can pay dividends in a number of ways.
Cash Dividends A cash dividend is the type most people are familiar with.
Therefore, stock splits are often taken as positive signals and thus boost stock prices.
A stock dividend is a dividend paid in additional shares of stock rather than in cash. For example, on a 100% stock dividend, a holder of 1 share will get an additional 1 share. Sell 200 shares A company in Hong Kong (where there are no taxes on dividends and capital gains) is considering either paying a special dividend or repurchasing its own shares. greater wealth if the company paid a special cash dividend. greater wealth if the company repurchased its shares. the same wealth under either a cash dividend or share repurchase program.