Unit 7 – Chapter 13 (2nd half)Page 584

Corporations: Organization, Stock Transactions and

Dividends

1

Cash Dividends - page 584

A cash distribution of earnings by a corporation to its stockholders is called a cash dividend. There are usually three conditions that a corporation must meet to pay a cash dividend.

1. Sufficient retained earnings

2. Sufficient cash

3. Formal action by the board of directors

2

First is the date of declaration. This is the date the board approved the dividend to

the stockholders.

The second important date is the date of record. This is the date determines who

will receive the dividend. It sets a “cutoff” for eligible stockholders.

The third important date is the date of payment. This is the date the dividend is

paid to the stockholders.

Three Important Dividend Dates

3

Example Exercise 13-3 (Page 586)

The important dates in connection with a cash dividend of $75,000 on a corporation’s common stock are February 26, March 30, and April 2.

Journalize the entries required on each date.

FYI – a cash dividend will reduce Retained Earnings at the end of the accounting period. We will debit Retained

Earnings and credit Cash Dividend in the closing process.

4

Example Exercise 13-3 (Page 586)

Feb 26 Cash Dividends 75,000Cash Dividends Payable 75,000

Mar 30 No entry

Apr 2 Cash Dividends Payable 75,000Cash 75,000

5

A distribution of dividends to stockholders in the form of the firm’s own shares is

called a stock dividend.

Stock Dividends – page 586

6

Example Exercise 13-4 (Page 587)

Vienna Highlights Corporation has 150,000 shares of $100 par common stock outstanding. On June 14, Vienna Highlights declared a 4% stock dividend to be issued August 15 to stockholders of record on July 1. The market price of the stock was $110 per share on June 14.

Journalize the entries required on June 14, July 1 and August 15.

How many shares of stock are we talking about here?

7

Example Exercise 13-4 (Page 587)

150,000 shares of $100 par common stock and we declared a 4% stock dividend

150,000 shares x 4% = 6000 shares

The journal entries to record this dividend will move the amount of the stock dividend from

Retained Earnings to Paid-in Capital using the market price (Common stock and Paid-in Capital in

Excess will both increase in the end).8

Example Exercise 13-4 (Page 587)

June 14 Stock Dividends (150,000 x 4% x $110) 660,000Stock Dividends Distributable (6,000 x $100) 600,000Paid-In Capital in Excess of Par – CS 60,000

July 1 No entry required.

Aug 15 Stock Dividends Distributable 600,000Common Stock 600,000

9

Occasionally, a corporation buys back its own stock to provide shares for resale to employees, for reissuing

as a bonus to employees, or for supporting the market price of the stock. This stock is referred to as

treasury stock.

Treasury Stock Transactions

10

Example Exercise 13-5 (Page 588)

On May 3, Buzz Off Corporation reacquired 3,200 shares of its common stock at $42 per share. On July 22, Buzz Off sold 2,000 of the reacquired shares at $47 per share. On August 30, Buzz Off sold the remaining shares at $40 per share.

Journalize the transactions of May 3, July 22, and August 30.

Hint – Remember when you remove something from an account you have to remove the amount you placed it in there at.

May 3rd First.

11

Example Exercise 13-5 (Page 588)

May 3 Treasury Stock (3,200 x $42) 134,400Cash 134,400

12

Okay on to the second entry:On July 22, Buzz Off sold 2,000 of the reacquired shares at $47 per share.

Example Exercise 13-5 (Page 588)

July 22 Cash (2,000 x $47) 94,000Treasury Stock (2,000 x $42) 84,000Paid-in Capital from Sale of Treasury Stock [2,000 x ($47 – $42)] 10,000

Now the last entry:On August 30, Buzz Off sold the remaining shares at $40 per share.

13

Example Exercise 13-5 (Page 588)

Aug. 30 Cash (1,200 x $40) 48,000Paid-in Capital from Sale of Treasury Stock [1,200 x ($42 – $40)] 2,400

Treasury Stock (1,200 x $42) 50,400

14

Objective 6 – Page 589

Reporting Stockholders’ Equity

The chapter covers a couple of methods for reporting stockholders’ equity on pages

589 through 593.

Make sure you read through these methods and look at the examples located within

the textbook.

15

A corporation sometimes reduces the par or stated value of their common stock and

issues a proportionate number of additional shares. This process is called a stock split. Since a stock split changes only the par or

stated value and the number of shares outstanding, it is not recorded by a journal

entry. The details of the stock split are normally disclosed in the notes to the

financial statements.

Stock Splits - Page 594

16

Questions???

• This unit’s textbook exercises are:– Problem 13-3A (like EE 13-5)– Problem 13-5A (a review of everything)

Use Problem 13-3B and Problem 13-5B with the solutions from Doc Sharing to help you.

Have a great weekend!!

17

18