Discuss the accounting treatment or disclosure that should be accorded a declared but unpaid cash dividend, an accumulated but undeclared dividend on cumulative preferred stock, and a stock dividend distributable.

Short Answer

Expert verified

The amount of unpaid dividend is treated as liability from the declaration date to until it is disbursed. In the case of accumulated dividends, the shareholders here are treated as the creditors with the value of dividend expected from them. In case of stock dividend distributable, the undistributed stock is normally listed in the stockholders’ equity part.

Step by step solution

01

Meaning of dividend

Dividends are sort of income that shareholders of the company get for per share of stock held by them. It is usually drawn from retained earnings of the firm.

02

Accounting treatment that should be accorded a declared but unpaid cash dividend

A cash dividend officially authorized by the board of directors would be listed by a debit to retained earnings and credited to dividends payable account. The dividends payable account should be grouped as a current liability.

03

Accounting treatment for an accumulated but undeclared dividend on cumulative preferred stock

An accumulated but undeclared dividend on cumulative preferred stock is not listed in the books as a liability till is declared by the board, but such arrears should be presented by a footnote to the balance sheet as well as excursively in the capital stock part.

04

Accounting treatment for stock dividend distributable

A stock dividend distributable, officially authorized and declared by the board, does not make an appearance as a liability as the stock dividend does not need future payments for assets or services and is voidable by the board before issuance. Though, an undistributed stock dividend is usually recorded in the stockholder’s equity part as it displays retained earnings in the way of transfer to paid-in-capital.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

What are compensated absences?

Question: What factors must be considered in determining whether or not to record a liability for pending litigation? For threatened litigation?

On January 1, 2017, Roosevelt Company purchased 12% bonds, having a maturity value of \(500,000, for \)537,907.40.

The bonds provide the bondholders with a 10% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest

received January 1 of each year. Roosevelt’s business model is to hold these bonds to collect contractual cash flows.

Instructions

(a) Prepare the journal entry at the date of the bond purchase.

(b) Prepare a bond amortization schedule.

(c) Prepare the journal entry to record the interest revenue and the amortization for 2017.

(d) Prepare the journal entry to record the interest revenue and the amortization for 2018

Leppard Corporation Sells DVD players. The corporation also offers its customers a 4-year warranty contract. During 2017, Leppard sold 20,000 warranty contracts at \(99 each. The corporation spent \)180,000 servicing warranties during 2017. Prepare Leppard’s journal entries for (a) the sale of contracts, (b) the cost of servicing the warranties, and (c) the recognition of warranty revenue. Assume the service costs are inventory costs.

(Fair Value Measurement Issues) Assume the same information as in E17-19 for Lilly Company. In addition,

assume that the investment in the Woods Inc. stock was sold during 2018 for \(195,000. On December 31, 2018, the following

information relates to its two remaining investments of common stock.

Cost Fair Value

(at purchase date) (at December 31)

Investment in Arroyo Company stock \)100,000 \(140,000

Investment in Lee Corporation stock 250,000 310,000

Total \)350,000 \(450,000

Net income before any security gains and losses for 2018 was \)905,000.

Instructions

(a) Compute the amount of net income or net loss that Lilly should report for 2018, taking into consideration Lilly’s securitytransactions for 2018.

(b) Prepare the journal entry to record unrealized gain or loss related to the investment in Arroyo Company stock atDecember 31, 2018.

See all solutions

Recommended explanations on Business Studies Textbooks

View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free