85 record Transactions and the results on gaue won Statements for Cash Dividends, residential property Dividends, stock Dividends, and Stock Splits

Do friend remember play the board game monopoly when you were younger? If you arrived on the opportunity space, you choose a card. The chance card may have actually paid a ?50 dividend. At the time, you most likely were just excited because that the added funds.

You are watching: The liability for a dividend is recorded on which of the following dates

Chance Card. A chance card native a syndicate game shows that the bank pays friend a dividend that ?50. (credit: alteration of “Monopoly chance Card” by Kerry Ceszyk/Flickr, CC by 4.0)


While a few companies may use a momentary account, dividends Declared, quite than maintained Earnings, most companies debit Retained revenue directly. Ultimately, any dividends declared cause a diminish to retained Earnings.

The second significant dividend day is the day of record. The date of document determines which shareholder will receive the dividends. There is no newspaper entry recorded; the agency creates a perform of the stockholders the will get dividends.

The day of payment is the 3rd important date related to dividends. This is the day that dividend payments room prepared and sent to shareholders who owned share on the date of record. The connected journal entry is a fulfillment that the obligation established on the explanation date; that reduces the Cash dividend Payable account (with a debit) and the Cash account (with a credit).


The newspaper entry to distribution the soft drinks on January 14 to reduce both the home Dividends Payable account (debit) and the Cash account (credit).


The 5% usual stock dividend will call for the distribution of 60,000 shares time 5%, or 3,000 additional shares of stock. One investor that owns 100 share will receive 5 share in the dividend circulation (5% × 100 shares). The journal entry to document the stock dividend declaration needs a diminish (debit) to Retained income for the industry value that the share to be distributed: 3,000 shares × ?9, or ?27,000. An increase (credit) come the common Stock dividend Distributable is videotaped for the par value of the share to be distributed: 3,000 × ?0.50, or ?1,500. The excess of the market value end the par worth is report as rise (credit) come the extr Paid-in capital from usual Stock account in the lot of ?25,500.


To watch the impacts on the balance sheet, it is beneficial to compare the stockholders’ equity ar of the balance sheet before and also after the tiny stock dividend.


Also assume that Duratech’s board of director declares a 30% share dividend ~ above the last day that the year, as soon as the market value of every share the stock to be ?9. The 30% stock dividend will call for the circulation of 60,000 shares time 30%, or 18,000 extr shares of stock. An investor that owns 100 share will get 30 shares in the dividend distribution (30% × 100 shares). The journal entry to record the share dividend declaration calls for a diminish (debit) come Retained revenue and an increase (credit) to typical Stock dividend Distributable because that the par or proclaimed value that the share to it is in distributed: 18,000 share × ?0.50, or ?9,000. The journal entry is:


There is no factor to consider of the market value in the accountancy records because that a large stock dividend due to the fact that the number of shares issued in a huge dividend is big enough to impact the market; as such, it reasons an immediate reduction that the sector price the the that company stock.

In compare the stockholders’ equity section of the balance sheet before and also after the big stock dividend, we have the right to see the the total stockholders’ same is the same before and after the share dividend, just as it was v a small dividend ((Figure)).


The separation typically reasons the market price of share to decline immediately to one-fourth the the initial value—from the ?24 per share pre-split price to about ?6 per share post-split (?24 ÷ 4), because the total value that the agency did not change as a an outcome of the split. The total stockholders’ equity on the company’s balance paper before and also after the split remain the same.


Date of declaration, may 12, no entry.

To record the payment:


In your an initial year of to work the following transactions take place for a company:

Net profit for the year is ?16,000100 share of ?1 par value common stock room issued for ?32 every shareThe company purchases 10 shares at ?35 per shareThe agency pays a cash dividend the ?1.50 every share

Prepare journal entries because that the over transactions and carry out the balance in the complying with accounts: typical Stock, Dividends, Paid-in Capital, kept Earnings, and also Treasury Stock.

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Key Concepts and Summary

Dividends space a circulation of this firm earnings, despite some carriers reinvest income rather than declare dividends.There space three dividend dates: date of declaration, day of record, and date that payment.Cash dividends are accounted for as a palliation of retained earnings and create a liability when declared.When dividends room declared and a firm has only typical stock issued, the reduction of retained earnings is the amount every share times the variety of outstanding shares.A residential or commercial property dividend occurs when a agency declares and distributes assets various other than cash. Castle are videotaped at the fair market value the the asset being distributed.A stock dividend is a circulation of share of stock to existing shareholders in lieu the a cash dividend.A little stock dividend occurs once a share dividend distribution is less than 25% that the complete outstanding shares based upon the impressive shares before the dividend distribution. The entry calls for a decrease to Retained revenue for the market value of the share to be distributed.A large stock dividend involves a circulation of share to existing shareholders the is bigger than 25% that the full outstanding share just before the distribution. The newspaper entry requires a decrease to kept Earnings and also a credit to share Dividends Distributable for the par or declared value the the shares to it is in distributed.Some companies employ share splits to save their stock price vain in the market. A timeless stock break-up occurs when a company’s board of director issues brand-new shares come existing shareholder in location of the old share by enhancing the variety of shares and also reducing the par worth of every share.

(Figure)A agency issued 40 share of ?1 par value common stock for ?5,000. The newspaper entry to document the transaction would incorporate which that the following?

debit the ?4,000 to typical stockcredit of ?20,000 to common stockcredit of ?40 to typical stockdebit the ?20,000 to usual stock