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CORPORATIONS: DIVIDENDS, RETAINED EARNINGS, AND INCOME REPORTING

CORPORATIONS: DIVIDENDS, RETAINED EARNINGS, AND INCOME REPORTING. Prepare the entries for cash dividends and stock dividends. Identify the items reported in a retained earnings statement. Prepare and analyze a comprehensive stockholders’ equity section.

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CORPORATIONS: DIVIDENDS, RETAINED EARNINGS, AND INCOME REPORTING

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  1. CORPORATIONS: DIVIDENDS, RETAINED EARNINGS, AND INCOME REPORTING

  2. Prepare the entries for cash dividends and stock dividends. Identify the items reported in a retained earnings statement. Prepare and analyze a comprehensive stockholders’ equity section. Describe the form and content of corporation income statements. Compute earnings per share. Study Objectives

  3. Corporations: Dividends, Retained Earnings, and Income Reporting Dividends Retained Earnings Statement Presentation and Analysis • Cash dividends • Stock dividends • Stock splits • Retained earnings restrictions • Prior period adjustments • Retained earnings statement • Stockholders’ Equity Presentation • Stockholders’ Equity Analysis • Income Statement Presentation • Income Statement Analysis

  4. Dividends A distribution of cash or stock to stockholders on a pro rata (proportional) basis. Types of Dividends: • Cash dividends. • Property dividends. • Script (promissory note). • Stock dividends. Dividends expressed: (1) as a percentage of the par or stated value, or (2) as a dollar amount per share. LO 1 Prepare the entries for cash dividends and stock dividends.

  5. Dividends Dividends require information concerning three dates:

  6. Cash Dividends For a corporation to pay a cash dividend, it must have: Retained earnings - Payment of cash dividends from retained earnings is legal in all states. Adequate cash. A declaration of dividends by the Board of Directors. Dividends See page 596 - 597

  7. 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? Dividends March 10 (Declaration Date) Retained earnings 50,000 Dividends payable 50,000 March 25 (Date of Record)No entry April 6 (Payment Date) Dividends payable 50,000 Cash 50,000 LO 1 Prepare the entries for cash dividends and stock dividends.

  8. Allocating Cash Dividends Between Preferred and Common Stock Dividends Holders of cumulative preferred stock must be paid any unpaid prior-year dividends before common stockholders receive dividends. LO 1 Prepare the entries for cash dividends and stock dividends.

  9. Dividends ExerciseArnez Corporation was organized on January 1, 2008. During its first year, the corporation issued 2,000 shares of $50 par value preferred stock and 100,000 shares of $10 par value common stock. At December 31, the company declared the following cash dividends: 2008, $6,000, 2009, $12,000, and 2010, $28,000. Instructions: (a) Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 8% and not cumulative. LO 1 Prepare the entries for cash dividends and stock dividends.

  10. Dividends Exercise(a) Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 8% and not cumulative. * * 2,000 shares x $50 par x 8% = $8,000 LO 1 Prepare the entries for cash dividends and stock dividends.

  11. Dividends Exercise(b) Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 9% and cumulative. ** * * 2,000 shares x $50 par x 9% = $9,000 ** 2008 Pfd. dividends $9,000 – declared $6,000 = $3,000 LO 1 Prepare the entries for cash dividends and stock dividends.

  12. Dividends Exercise(c) Journalize the declaration of the cash dividend at December 31, 2010, under part (b). Journal entry: Retained earnings 28,000 Dividends payable 28,000 See another illustration page 598 -599

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