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Chapter 15: Q12E. (page 814)

(Cash Dividend and Liquidating Dividend) Lotoya Davis Corporation has 10 million shares of common stock issued and outstanding. On June 1, the board of directors voted an 80 cents per share cash dividend to stockholders of record as of June 14, payable June 3

Instructions

  1. Prepare the journal entry for each of the dates above, assuming the dividend represents a distribution of earnings.
  2. How would the entry differ if the dividend were a liquidating dividend?

Short Answer

Expert verified

Total Dividend Paid: $8,000,000

Step by step solution

01

Meaning of Dividend

A dividend is given to the shareholders from the company profit and retained earnings. After ascertaining profit and accumulating retained earnings, a company pays dividend according to the value of the share a shareholder hold.

02

Preparing Journal Entries

S.no.

Particular

Debit $

Credit $

June 1

Retained Earnings

8,000,000

Dividend payable

8,000,000

To record the issue of dividends.

June 14

No Entry on date of record

June 30

Dividend Payable

8,000,000

Cash

8,000,000

To record the payment of dividends.

03

Explaining the difference in entries if the dividend were liquidating dividend

If there were a liquidating dividend, the debit entry on the date of declaration would be to additional Paid-in Capital rather than Retained Earnings.

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Most popular questions from this chapter

Hatch Company has two classes of capital stock outstanding: 8%, \(20 par preferred and \)5 par common. At December 31, 2017, the following accounts were included in stockholders’ equity.

Preferred Stock, 150,000 shares \( 3,000,000

Common Stock, 2,000,000 shares 10,000,000

Paid-in Capital in Excess of Par—Preferred Stock 200,000

Paid-in Capital in Excess of Par—Common Stock 27,000,000

Retained Earnings 4,500,000

The following transactions affected stockholders’ equity during 2018.

Jan.1 30,000 shares of preferred stock issued at \)22 per share.

Feb.1 50,000 shares of common stock issued at \(20 per share.

June 1 2-for-1 stock split (par value reduced to \)2.50).

July 1 30,000 shares of common treasury stock purchased at \(10 per

share. Hatch uses the cost method.

Sept.15 10,000 shares of treasury stock reissued at \)11 per share.

Dec.31 The preferred dividend is declared, and a common dividend of 50¢

per share is declared.

Dec. 31 Net income is $2,100,000.

Instructions

Prepare the stockholders’ equity section for Hatch Company at December 31, 2018. Show all supporting computations.

Statements of Financial Accounting Concepts set forth financial accounting and reporting objectives and fundamentals that will be used by the Financial Accounting Standards Board in developing standards. Concepts Statement No. 6 defines various elements of financial statements.

Instructions

Answer the following questions based on SFAC No. 6.

  1. Define and discuss the term “equity.”
  2. What transactions or events change owners’ equity?
  3. Define “investments by owners” and provide examples of this type of transaction. What financial statement element other than equity is typically affected by owner investments?
  4. Define “distributions to owners” and provide examples of this type of transaction. What financial statement element other than equity is typically affected by distributions?
  5. What are examples of changes within owners’ equity that do not change the total amount of owners’ equity?

How are restrictions of retained earnings reported?

Satchel Inc. purchases 10,000 shares of its own previously issued \(10 par common stock for \)290,000. Assuming the shares are held in the treasury with intent to reissue, what effect does this transaction have on (a) net income, (b) total assets, (c) total paid-in capital, and (d) total stockholders’ equity?

Seles Corporation’s charter authorized issuance of 100,000 shares of \(10 par value common stock and 50,000 shares of \)50 preferred stock. The following transactions involving the issuance of shares of stock were completed. Each transaction is independent of the others.

  1. Issued a \(10,000, 9% bond payable at par and gave as a bonus one share of preferred stock, which at that time was selling for \)106 a share.
  2. Issued 500 shares of common stock for equipment. The equipment had been appraised at \(7,100; the seller’s book value was \)6,200. The most recent market price of the common stock is \(16 a share.
  3. Issued 375 shares of common and 100 shares of preferred for a lump sum amounting to \)10,800. The common had been selling at \(14 and the preferred at \)65.
  4. Issued 200 shares of common and 50 shares of preferred for equipment. The common had a fair value of \(16 per share; the equipment has a fair value of \)6,500.

Instructions

Record the transactions listed above in journal entry form.
See all solutions

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