Retained Earnings

9/8/2020
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Stockholders’ Equity
The Corporate Corporate Presentation and

Preferred Stock Dividend Policy
Form Capital Analysis
State Issuance of Features Disclosure of Presentation

corporate law stock Accounting appropriation Analysis
Capital stock Reacquisition for and Financial
or share of shares reporting condition and
system preferred dividend
Variety of stock distributions
ownership Types of
interests dividends
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Retained Earnings
Retained earnings represent the cumulative balance of
periodic income, dividend distribution, changes in
accounting policies, prior period errors and other
adjustments.
Deficit refers to accumulated losses.
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Appropriations
Unappropriated retained earnings represent the
portion which is free and can be declared as dividends
to shareholders.
Appropriated retained earnings represent that portion

which has been restricted and therefore is not
available for any dividend declaratoin
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Appropriations
Park Bogum Co. income for the year of P500,000. It

also approprited P200,000 for plant expansion.
Debit Credit
Profit and loss summary 500,000

Unappropriated retained earnings 500,000
Unappropriated retained earnings 200,000

Appropriated retained earnings 200,000
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Dividends
These are distribution of earnings as capital to the
shareholders in proportion to their shareholdings.
Dividends are broadly classified into two:
Dividends out of earnings (return on capital)
Dividends out of capital (return of capital
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Dividend Policy
Dividend distributions generally are based on

accumulated profits (retained earnings).
Few companies pay dividends in amounts equal to
their legally available retained earnings. Why?
Maintain agreements with creditors.
Meet state incorporation requirements.
To finance growth or expansion.
To smooth out dividend payments.
To build up a cushion against possible losses.
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Types of Dividends
1. Cash dividends. 3. Liquidating dividends.

2. Property dividends. 4. Stock dividends.
Dividends require information concerning three dates:

a. Date of declaration
b. Date of record
c. Date of payment
LO 7 Identify the various forms of dividend distributions.
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Types of Dividends
Cash Dividends
Board of directors vote on the declaration
of cash dividends.
A declared cash dividend is a liability.
Companies do not declare or pay cash
dividends on treasury stock.
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Cash Dividend
Illustration What would be the journal entries made
by a corporation that declared a P50,000 cash
dividend on March 10, payable on April 6 to
shareholders of record on March 25?
Debit Credit
March 10 (Declaration Date)
Retained earnings 50,000
Dividends payable 50,000
March 25 (Date of Record) No entry
April 6 (Payment Date)

Cash 50,000
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Types of Dividends
Property Dividends
Dividends payable in assets other than cash.
Restate at fair value the property it will
distribute, recognizing any gain or loss.
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Property Dividend
Illustration A dividend is declared Jan. 5th and paid Jan. 25th,
in bonds held as an investment; the bonds have a book value of
P100,000 and a fair market value of P135,000 at the time of
declaration and P150,000 at the time of issuance.
Debit Credit
Date of Declaration
Investment in bonds 35,000
Gain on investment 35,000
and
Property dividend payable 135,000
Date of Issuance
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Property Dividend
Illustration A dividend is declared Jan. 5th and paid Jan. 25th,
in bonds held as an investment; ; the bonds have a book value of
P100,000 and a fair market value of P135,000 at the time of
declaration and P120,000 at the time of issuance.
Debit Credit
Date of Declaration
and
Date of Issuance
Impairment loss 15,000
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Types of Dividends
Liability dividends
Any dividends that creates a liability:
Scrip
Bonds
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Liability Dividend
Park Seo Joon Mining Company declared, on April 1, a scrip
dividend of P500,000 with an annual interest of 12% payable on
September 30,.
Debit Credit
April 1 (Declaration Date)
Scrip dividends payable 500,000
Sept 30 (Payment Date)

Scrip dividends payable 500,000
Interest expense 30,000
Cash 530,000
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Types of Dividends
Stock Dividends
Issuance of own stock to stockholders on a pro
rata basis, without receiving any consideration.
When stock dividend is less than 20% of the
common shares outstanding, company transfers
fair market value of the shares from retained
earnings (small stock dividend).
When stock dividend is 20% or more of the
common shares outstanding, company transfers
at par (large stock dividend)
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Stock Dividend
Park Bogum has 5,000 shares issued and outstanding. The per
share par value is P1, book value P32 and market value is P40.
Debit Credit
10% stock dividend is declared
Common stock dividend distributable 5,000
Share premium 195,000
Stock issued
Common stock div. distributable 5,000
Common stock 5,000
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Stock Dividend
Park Bogum Co. has 5,000 shares issued and

outstanding. The per share par value is P1, and
market value is P40.
Debit Credit
50% stock dividend is declared
Stock issued
Common stock 5,000
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Types of Dividends
Liquidating Dividends
Any dividend not based on earnings reduces
corporate paid-in capital.
Return of capital
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Liquidating Dividend
Kim Soo Hyun Company declared, on April 20, a dividend of
P700,000 payable on June 1. Of this amount, P125,000 is a return
of capital. Prepare the April 20 and June 1 entries for Radical Rex.
Debit Credit
April 20 (Declaration Date)
Share capital/Share premium 125,000
June 1 (Payment Date)

Cash 700,000
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Retained Earnings

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Retained Earnings

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9/8/2020

The Corporate Corporate Presentation and

State Issuance of Features Disclosure of Presentation

Deficit refers to accumulated losses.

Appropriated retained earnings represent that portion

Park Bogum Co. income for the year of P500,000. It

Profit and loss summary 500,000

Unappropriated retained earnings 200,000

Dividend distributions generally are based on

1. Cash dividends. 3. Liquidating dividends.

Dividends require information concerning three dates:

LO 7 Identify the various forms of dividend distributions.

LO 7 Identify the various forms of dividend distributions.

March 25 (Date of Record) No entry

April 6 (Payment Date)

LO 7 Identify the various forms of dividend distributions.

LO 7 Identify the various forms of dividend distributions.

Sept 30 (Payment Date)

Park Bogum Co. has 5,000 shares issued and

LO 7 Identify the various forms of dividend distributions.

June 1 (Payment Date)

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