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Flashcards in Dividends Deck (23):

List the journal entries to record cash dividend declaration and payment.

DR: Retained Earnings (or Dividends)
    CR: Dividends Payable

DR: Dividends Payable
    CR: Cash


On what date are dividend liabilities established?

Declaration date.


List the journal entry to record a scrip dividend declaration.

DR: Retained earnings
    CR: Scrip dividend payable


List the journal entry to record declaration of property dividends (assuming asset fair value exceeds book value).

DR: Retained Earnings (at FMV at declaration date)
DR: Asset (FMV - book value)
    CR: Dividends Payable (FMV)
    CR: Gain on Disposal (FMV - book value)


List the entry to record a scrip dividend payment.

DR: Scrip dividend payable
DR: Interest expense
    CR: Cash


What types of dividends require establishing a liability?

Those dividends involving a distribution of assets.


Define "scrip dividend".

A dividend in the form of an interest bearing note payable.


Define "liquidating dividends".

  1. A return of capital, rather than a return oncapital;
  2. Reduces contributed capital account instead of retained earnings


List the journal entry to record payment of property dividend.

DR: Dividends Payable
    CR: Cash or Asset


What is a Small Stock Dividend?

  • < 25% outstanding shares
  • Use Fair Value 


What is a Large Stock dividend?

  • > or = 25% outstanding shares
  • Use Par value 


What entry is needed for Stock Splits?

No accounting entry needed but a memo entry might be made.


What is the basic Journal Entry for a

Small Stock Dividend?

Retained Earnings        (Fair value)

      Common Stock                (Par Value)

       APIC                                 (PLUG)   


Decrease RE and increase APIC


What is the journal entry for a 

Large Stock Dividend?

Retained Earnings         (Par)

      Common Stock               (Par)


Decrease RE and no effect on APIC




What is a 2-1 Stock Split?

  • Halves the par value and doubles the number of shares.
  • The reason firms split their shares is to reduce the market price and make the shares available to a larger number of shareholders.


How do you account for dividends in arrears?

  • Dividends in arrears are not recognized until received.
  • The stock dividend is not treated as revenue, but rather reduces the cost per unit of Wood's investment in Arlo's common stock.


Does the declaration of a liability cause a liability to be reported?


  • The declaration of a stock dividend does not cause a liability to be reported.
  • The dividend is not an asset. Stock dividends can be revoked, and the distribution of the dividend does not cause a decrease in the firm's assets or an increase in


List the order of dividend payment when partially participating preferred stock is outstanding.

  1. Preferred receives any dividends in arrears;
  2. Preferred gets current period dividends;
  3. Common gets dividends based on  
    • Preferred percentage x total par outstanding;
  4. Preferred gets additional percentage;
  5. Common gets Remainder.


What dividends are paid before any other dividends are paid?

Preferred stock dividends in arrears.


List the order of payment for partially participating stocks.

  1. Dividends in arrears;
  2. Current p/s dividend;
  3. Preferred stock receives up to an additional percentage.


Is there any additional participation to preferred stock if total dividends are not sufficient to provide common stock with dividends based on the fully participating preferred percentage?

There is no additional participation.


Is there any additional participation to preferred stock if total dividends are not sufficient to provide the partially participating preferred percentage to both common stock and preferred stock?

The remainder of dividends after the basic preferred percentage is provided to common, is multiplied by the ratio: total preferred par value to total par value of both classes of stock.