Retained Earnings

Cash Dividends

To pay a cash dividend

the corporation Ca sh Divide nd Type s a nd Fre que nc y
must have: 100%

1. A sufficient balance 80% 73%

in retained earnings 60%
and
40%
2. The cash necessary 23%
20%
to pay the dividend.
0%
Co m m o n Pre fe rre d
Cash Dividends
Regular cash dividends provide a return to investors
and almost always affect the stock’s market value.

June
30

Stockholders
Corporation

Dividends
Entries for Cash Dividends
Three important dates

e nds
id
Div

Date of Declaration Date of Record Date of Payment

Record liability No entry Record payment of
for dividend. required. cash to stockholders.
Entries for Cash Dividends
On January 19, a P1 per share cash dividend is
declared on Dana, Inc.’s 10,000 ordinary
shares outstanding. The dividend will be paid
on March 19 to stockholders of record on
e nds February 19.
id
Div

Jan. 19 Retained earnings 10,000

Cash Dividends Payable 10,000
Declared P1 per share cash dividend

Date of Declaration
Record liability
for dividend.
Entries for Cash Dividends
On January 19, a P1 per share cash dividend is
declared on Dana, Inc.’s 10,000 ordinary
shares outstanding. The dividend will be paid
on March 19 to stockholders of record on
February 19.

No entry required on
Date of Record
February 19.
No entry
required.
Entries for Cash Dividends
On January 19, a P1 per share cash dividend is
declared on Dana, Inc.’s 10,000 ordinary
shares outstanding. The dividend will be paid
on March 19 to stockholders of record on
February 19.

Mar. 19 Cash dividend payable 10,000

Cash 10,000
Paid P1 per share cash dividend

Date of Payment
Record payment of
cash to stockholders.
Stock Dividends
The
The corporation
corporation distributes
distributes additional
additional shares
shares of
of its
its own
own
stock
stock to
to its
its stockholders
stockholders without
without receiving
receiving any
any
payment
payment inin return.
return.

Why
Why aa stock
stock dividend?
dividend?
100shares
100 Shares
HotAir, Inc. ••Can
Can be
be used
used to
to keep
keep the
the market
market
Common Stock price
price on
on the
the stock
stock affordable.
affordable.
P1 par
$1 par value
••Can
Can provide
provide evidence
evidence of
of
management’s
management’s confidence
confidence that
that
Stockholders
the
the company
company isis doing
doing well.
well.
Stock Dividends
Small
SmallStock
StockDividend
Dividend
 Distributionisis ££20%
Distribution 20%ofofthe
thepreviously
previouslyoutstanding
outstanding
shares.
shares.

Capitalize
Capitalizeretained
retainedearnings
earningsfor
forthe
themarket
marketvalue
valueof
of
the
theshares
sharesto
tobebedistributed.
distributed.

Large
Large Stock
Stock Dividend
Dividend

Distribution
Distribution is
is >> 20%
20% ofof the
the previously
previously
outstanding
outstanding shares.
shares.

Capitalize
Capitalize retained
retained earnings
earnings forfor the
the minimum
minimum
amount
amount required
required by by state
state law,
law, usually
usually par
par or
or
stated
stated value
value ofof the
the shares.
shares.
Recording a Small Stock Dividend
Here
Here is
is the
the stockholders’
stockholders’ equity
equity section
section of
of
Quest’s
Quest’s balance
balance sheet
sheet prior
prior to
to the
the declaration
declaration
of
of aa small
small stock
stock dividend.
dividend.
Quest, Inc.
Stockholders' Equity
December 31, 2014

Ordinary Shares - P1 par value,

250,000 shares authorized,
100,000 shares issued and outstanding 100,000.00
Share Premium 8,000.00
Total contributed capital 108,000.00
Retained earnings 35,000.00
Total stockholders' equity 143,000.00
Recording a Small Stock Dividend
On
On December
December 31,
31, 2014,
2014, Quest
Quest declared
declared aa 2%
2% stock
stock
dividend,
dividend, when
when the
the stock
stock was
was selling
selling for
for $10
$10 per
per share.
share.
The
The stock
stock will
will be
be distributed
distributed to
to stockholders
stockholders on
on
January
January 20,
20, 2015.
2015. Let’s
Let’s make
make the
the December
December 31 31 entry.
entry.

Dec. 31 Retained earnings 20,000

Shares distributable 2,000

Share Premium 18,000
Declared a 2,000 shares (2%) stock dividend

100,000
100,000 ×× 2%
2% == 2,000
2,000 ×× P10
P10 == P20,000/
P20,000/ 10000*.02=2000shares
10000*.02=2000shares
2,000
2,000 ×× P1
P1 par
par == P2,000/2000*P10=20000RE,
P2,000/2000*P10=20000RE, 2000*P1=2000
2000*P1=2000
 Quest, Inc.
Stockholders' Equity
December 31, 2014

Ordinary Shares - P1 par value,

Before the 250,000 shares authorized,
100,000 shares issued and outstanding 100,000
stock Share Premium 8,000

dividend. Total contributed capital

Retained earnings
108,000
35,000
Total stockholders' equity 143,000

Quest, Inc.
Stockholders' Equity
December 31, 2014

Ordinary Shares - P1 par value,

250,000 shares authorized,
100,000 shares issued and outstanding
Common stock distributable, 2,000 shares
100,000
2,000
After the
Total common stock issued and to be issued 102,000 stock
Share Premium 26,000
Total contributed capital 128,000 dividend.
Retained earnings 15,000
Total stockholders' equity 143,000
Recording a Large Stock Dividend
Router,
Router, Inc.
Inc. shows
shows the
the following
following stockholders’
stockholders’ equity
equity
section
section just
just prior
prior to
to issuing
issuing aa large
large stock
stock dividend.
dividend.

Router, Inc.
Stockholders' Equity
December 31, 2014

Ordinary Shares - P1 par value,

200,000 shares authorized,
50,000 shares issued and outstanding 50,000
Share Premium 75,000
Total contributed capital 125,000
Retained earnings 100,000
Total stockholders' equity 225,000
Recording a Large Stock Dividend
On
On December
December 31,31, 2014,
2014, Router
Router declared
declared aa 40%
40% stock
stock
dividend,
dividend, when
when the
the stock
stock was
was selling
selling for
for P8
P8 per
per
share.
share. State
State law
law requires
requires that
that large
large stock
stock dividends
dividends
be
be capitalized
capitalized at
at par
par value
value per
per share.
share.

Dec. 31 Retained earnings 20,000

Shares distributable 20,000

Declared a 20,000 shares (40%) stock dividend

50,000
50,000 ×× 40%
40% == 20,000
20,000 shares
shares ×× P1
P1 par
par value
value == P20,000
P20,000
Stock Splits
A distribution of additional shares of stock to stockholders
according to their percent ownership.

P10 par value

Common Stock Old

Shares
100 shares

P5 par value
New
Shares Common Stock
200 shares
Stock Splits
Thomas, Inc. has the following stockholders’ equity
section just prior to a 2-for-1 stock split.
Thomas, Inc.
Stockholders' Equity
June 30, 2014

Ordinary Shares - P10 par value,

100,000 shares authorized,
25,000 shares issued and outstanding 250,000
Share Premium 300,000
Total contributed capital 550,000
Retained earnings 775,000
Total stockholders' equity 1,325,000
Stock Splits
After the 2-for-1 split the stockholders’ equity section of
the balance sheet looks like this . . .
Thomas, Inc.
Stockholders' Equity No accounting
June 30, 2014 entry is made.
Ordinary Shares - P5 par value,
100,000 shares authorized,
50,000 shares issued and outstanding 250,000
Share Premium 300,000
Total contributed capital 550,000
Retained earnings 775,000
Total stockholders' equity 1,325,000
Stock Splits
• The split does not affect any equity amounts reported on balance
sheet or any individual stockholder’s percent ownership. Both the
contributed capital and retained earnings accounts are unchanged by
a split.