M4 Flashcards
What are property dividends? How are they reported?
- They distribute non cash assets (inventory, investment securities) to shareholders.
- On the date of declaration, restate to fair value and any gain or loss should be recognized in income.
- Dividend liability and related debit to retained earnings should be recorded at the fair value (market price)
On what date do dividends reduce retained earnings?
The date of declaration is the date the board of directors formally approve a dividend. A liability is created, and retained earnings is reduced.
How do you calculate a liquidating dividend?
Subtract retained earnings from total cash dividend declared. The amount in excess of retained earnings would be charged first to additional paid in capital and then to common or preferred stock. It reduces total paid in capital.
How do you calculate the gain on disposal of stock when declaring a property dividend?
Calculate the difference between the book value and fair market value of the property dividend, and record it as a gain/loss on disposal of asset.
What is the treatment of a small stock dividend?
Less than 20-25% of the shares previously outstanding are distributed, the dividends is treated as a small stock dividend because the issuance is not expected to affect the market price of the stock. The FV of the dividend at the date of declaration is taken out of RE to capital stock and APIC. No effect on shareholders’ equity, as APIC is is subsided for RE.
What is the treatment of a large stock dividend?
More than 20-25% of the previously issued shares outstanding, the dividend is treated as a large stock dividend, as it is expected to reduce the market price of the stock (like a stock split). The par is transferred from RE to capital stock for legal requirements.
