Chapter 7: Accounting for Corporations
IMPORTANT DATES)
RETAINED EARNINGS- component of the shareholders
equity- profit directed activities.
 Income summary is closed to retained
earnings (credited and RE- profit, debited
and RE- loss)
 Basic source- PROFIT
DIVIDENDS- distributions to shareholders of CASH,
PROPERTY OR SHARES from unrestricted RE (free) on
the basis of all – ISSUED AND FULLY PAID SHARES and
ALL SUBSCRIBED PAR VALUE SHARES except treasury
shares. It reduces RE
Causes ng increase/ decrease of RE:
1. Debits- reissuance of treasury stocks- BELOW
COST
2. Loss on retirement of treasury stocks
3. Debits/ credits from PRIOR PERIOD ERRORS
Prior period errors- errors discovered in the CURRENT
Period that are of such significance na napektuhan ang
1-more na FS.
DEFICIT- debit balance ng RE dahil sa accumulated
losses.
RE may be restricted or unrestricted, appropriated or
unappropriated.
 Unrestricted RE- free can be declared as
dividends.
 Restrictions: legal, contractual, voluntary
DIVIDENDS IN GENERAL
RE is not a cash fund- it is an owner’s equity account
representing claims on all assets in general and not on
any asset in particular.
Shareholders are not guaranteed dividends and
dividends do not become a liability of the corpo UNTIL
THE BOD FORMALLY DECLARED A DIVIDEND
DISTRIBUTION.
Dividends declared sa Unrestricted retained earnings,
cannot be declared out of the legal capital.
Any form of dividend declaration should be based on
the TOTAL SUBSCRIPTION OF A SHAREHOLDER
Subscribers are considered shareholders from the time
of their subscriptions are accepted by the corpo
DECLARATION AND PAYMENT OF DIVIDENDS (3
1. DATE OF DECLARATION- BOD adopt a
resolution; amount, type and date of payment,
set a date of record.
 CASH DIVIDENDS- declared by BOD
 SHARE DIVIDENDS- concurrence of AT
LEAST 2/3 of the OUTSTANDING
SHAREHOLDERS
 Declared dividends are obligations of the
firm, becomes a liab in this date
 SHARES DISTRIBUTABLE is also recognized
Entry:
Dr. RE or Share Dividends Declared- closed din
sa RE
Cr. Shares Distributable (liab account)
2. DATE OF RECORD- list of shareholders entitled
to the declared dividends is prepared.
Note: if an investor buys a share after this date,
he will not receive the dividend- said to be
traded ex-dividend
No entry is required.
3. DATE OF PAYMENT- settles liab
Entry:
DR. Shares distributable
Cr. Cash/ property/ share capital
CASH DIVIDENDS
Majority of dividends distributed is paid in
CASH.
Dividends on PAR VALUE SHARES are stated as a
certain percentage of the PAR VALUE.
NO PAR VALUE SHARES sated at a CERTAIN
AMOUNT PER SHARE.
When the BOD declares a CASH DIVIDEND
ENTRY:
Dr. RE or Cash dividends declared- closed din sa RE
Cr. Cash Dividends payable
*issued minus treasury multiply sa declared cash
dividend per share
Cash dividends payable reported as CURRENT LIAB in
BS, decreases total assets and total share holder’s
equity
NOTE! Subscribed shares MUST BE PAR VALUE SHARES,
NO PAR VALUE SHARES ARE CONSIDERED AS LEGALLY
ISSUED WHEN FULLY PAID
PROPERTY DIVIDENDS
Distribution to shareholders that is payable in non-cash
assets- PD or dividends in kind
 Fair value of assets to be distributed/ fair
market value of the investment at the
declaration date
Entry:
Dr. RE
Cr. Property Dividends payable
To record declaration of dividend
Entry:
Dr. Property Dividends payable
Cr. Investment in Equity Securities (carrying amount/
orig value)
Gain on distribution of property dividends (in
excess)
 Bec of the use of fair value, a problem will
arise at settlement date
 Account sa conflict: adjust the carrying
amount of the dividend payable
 An entity shall measure a non-current asset
(disposal group) classified as held for
distribution to owners at the lower of its
carrying amount and fair value less costs to
distribute
SHARE DIVIDENDS
or BONUS. SD do not transfer assets to the
shareholders.
 Affects only the account within the
shareholders equity
 Increases the TOTAL SHARE CAPITAL and
Decrease the RETAINED EARNINGS
account. Total shareholder’s equity is
unchanged.
 From the shareholders POV- A SD does not
change their percentage interest in the
corpo although TOTAL OUTSTANDING
SHARES have increased
 Accounting entries depends upon the SIZE
of the share dividend
SMALL SHARE DIVIDEND
 Additional shares issued are LESS THAN
20% of the PREVIOUSLY OUTSTANDING
SHARES
 Recorded by transferring from RE to share
capital (Ordinary shares and share
premium) the FAIR MARKET VALUE of the
additional shares to be issued.
 When FMV is lower than PAR or stated
value, PAR or stated value is the BASIS of
recording
Entry:
Dr. Retained Earnings (fair market value of the
share dividends)
Cr. Shares Distributable (Additional shares na
iiissue multiply sa par value na stated sa
Ordinary shares)
Cr. Share Premium (in excess)
To record declaration of 10% share dividend.
Entry:
Dr. Shares Distributable
Cr. Ordinary Shares
To record issuance of share dividends.
 If magpeprepare ng FS between declaration
date and distribution date. Share
Distributable account will be shown in the
shareholder’s equity after Ordinary shares
account.
 When shares are distributed only
components of the shareholder’s equity
changes: retained earnings decreases and
share capital increases. Total shareholders’
equity did not change.
 Tataas din yung Shares issued and
outstanding
  Receipt of a share dividend does not alter
the relative position of a shareholder.

 No profit is realized by shareholders.

LARGE SHARE DIVIDENDS

 RECORDED AT PAR VALUE kaya walang
share premium
 20% or more of the PREVIOUSLY
OUTSTANDING SHARES
 Effect: reduce materially the market value
per share, then only the par or stated
value is CR to ordinary shares with Dr. RE
Entry:
Dr. RE
Cr. Shares Distributable
To record declaration of share dividend
Entry:
Dr. Shares Distributable
Cr. Ordinary Shares
To record issuance of share dividend