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Accounting 3

Accounting 3. Chapter 25 Section 1 Distributing Dividends. Stockholder’s Equity Accounts Used by a Corporation. A corporation’s ownership is divided into units. Each unit is known as a stock. Stockholder – An owner of one or more shares of a corporation.

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Accounting 3

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  1. Accounting 3 Chapter 25 Section 1 Distributing Dividends

  2. Stockholder’s Equity Accounts Used by a Corporation • A corporation’s ownership is divided into units. Each unit is known as a stock. • Stockholder – An owner of one or more shares of a corporation. • Dividend – A portion of a corporation’s earnings given to each stockholder as a return on their investment in the company.

  3. Stockholder’s Equity • Separate general ledger owner’s equity accounts are maintained for each owner of a proprietorship or partnership. • In a corporation the owner’s equity portion is referred to as Stockholder’s Equity and consists of four accounts: • Capital Stock • Retained Earnings • Dividends • Income Summary • Other new accounts: • Dividends Payable – liability account showing amount of dividends that need to be paid.

  4. Stockholder’s Equity • Capital Stock • Corporations have many owners. So instead of having separate accounts like proprietorships and partnerships, one big account is used for the investments of all owners. • Retained Earnings • This is a second stockholder’s equity account that is used to record a corporation’s earnings that have not yet (and may or may not be) distributed to stockholders. • Dividends • A third stockholder’s equity account used to record the distribution of a corporation’s earning to stockholders.

  5. Declaring a Dividend • Board of Directors – A group of people elected by the stockholders to manage a corporation. • Dividends can be distributed to stockholders only by formal action of a BOD and usually happen at certain times of the year and are paid at a later date. • This action is called Declaring a Dividend.

  6. Declaring a Dividend • The Winning Edge company declares dividends on March 15, June 15, September 15, and December 15. • The dividends are then paid on the 15th of the month after the declaration was made (i.e. April 15th, July 15th, etc). • To figure the amount of dividends needing to be paid the following is done: • Number of Shares Outstanding x Quarterly Dividend per Share = Total Quarterly Dividend • Example: • 10,000 (NSO) x $1.00 (QDPS) = $10,000.00 (TQD)

  7. General Journal Page ___ Doc. No. Post Ref. Date Account Title Debit Credit Dec. 15. Winning Edger’s board of directors declared a quarterly dividend of $1.00 per share; capital stock issued is 10,000 shares; total dividend, $10,000.00. Date of payment is Jan. 15. Memorandum No. 189. 14 Dec06 15 Dividends M189 10 0 0 0 00 Dividends Payable 10 0 0 0 00

  8. Paying a Dividend • Corporations issue a big check into a special account for the amount of the total dividends to be paid. • A separate check to each stockholder is then written out of this special account for the dividend they are due. • This is done to avoid a large number of cash payments journal entries and also reserves cash specifically for paying dividends.

  9. Cash Payments Journal Page ___ Ck No. Post Ref. GENERAL Date Account Title Accts Pay Debit Purch. Disc. Credit Cash Credit DEBIT CREDIT Jan. 15. Paid cash for quarterly dividend declared Dec. 15, $10,000.00. Check No. 879. Jan 07 15 Dividends Payable 879 10 0 0 0 00 10 0 0 0 00

  10. General Journal Page ___ Doc. No. Post Ref. Date Account Title Debit Credit Work Together p. 639 12 Dec 15 Dividends M212 25 0 0 0 00 Dividends Payable 25 0 0 0 00

  11. Cash Payments Journal Page ___ Ck No. Post Ref. GENERAL Date Account Title Accts Pay Debit Purch. Disc. Credit Cash Credit DEBIT CREDIT 15 Jan 15 Dividends Payable 543 25 0 0 0 00 25 0 0 0 00 Assignments

  12. Assignments • Do Application 25-1 and 25-2 by hand. • Turn them into Mrs. Middleton. • Move on to Section 2.

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