CENTURY 21 ACCOUNTING © Thomson/South-Western

LESSON 11-3LESSON 11-3

Calculating and Journalizing Dividends for a Corporation

CENTURY 21 ACCOUNTING © Thomson/South-Western

Equity & the Dividend AccountEquity & the Dividend Account

Equity Retained Earnings for a corporation are like capital for a

partnership or sole proprietorship Retained Earnings shows total of all profits kept in a

business.

.Dividend Account Corporate earnings distributed to stockholders are

dividends Compare to Drawing in a sole proprietorship Classified as stockholder’s equity

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LESSON 11-3

CENTURY 21 ACCOUNTING © Thomson/South-Western

DividendsDividends

Action by the board of directors to distribute corporate earnings to stockholders is called declaring a dividend

The board determines when & what amount of the retained earnings will be distributed

Board does not have to declare a dividend if a corporation does not earn enough income to pay dividends

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LESSON 11-3

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Dividend DatesDividend DatesThree important dates are involved in

distributing a dividend:Date of declarationDate of recordDate of payment

Transactions are recorded in a corporation’s accounts on two of the three datesDate of declarationDate of payment

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LESSON 11-3

CENTURY 21 ACCOUNTING © Thomson/South-Western

Dividend DatesDividend DatesDate of declaration: the date on which a

board of directors votes to distribute a dividend

Date of record: The date that determines which stockholders are to receive dividends

Date of payment: The date on which dividends are actually to be paid to stockholders

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LESSON 11-3

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LESSON 11-3

JOURNALIZING JOURNALIZING DECLARATION OF DIVIDENDDECLARATION OF DIVIDEND page 330

Date of declaration: the date on which a board of directors votes to distribute a dividendJournalize in general journal

Debit Dividends – increaseCredit Dividends Payable - increase

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LESSON 11-3

JOURNALIZING PAYMENT JOURNALIZING PAYMENT OF A DIVIDENDOF A DIVIDEND page 330

Date of payment: The date on which dividends are actually to be paid to stockholders Journalized in Cash Payments journal Debit dividends payable (liability) Credit cash (decreases)

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LESSON 11-3

Preferred stockholders are paid before other stockholders

Par value time percentage times number shares

Calculating Value of Preferred StockCalculating Value of Preferred Stock page 328

Number of Preferred Shares

Par Value =Value of

Preferred Stock×

1,000 $100.00 = $100,000.00×

CompuForm declare an annual dividend of $24,000. On the date of record, the corporation has issued 1,000 shares of 8%, $100 par-value preferred stock & 16,000 shares of $20 stated-value common stock.

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LESSON 11-3

Calculating Value of Common StockCalculating Value of Common Stock page 328

Number of Common Shares

Stated Value =Value of

Common Stock×

16,000 $20.00 = $320,000.00×

CompuForm declare an annual dividend of $24,000. On the date of record, the corporation has issued 1,000 shares of 8%, $100 par-value preferred stock & 16,000 shares of $20 stated-value common stock.

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LESSON 11-3

Calculating Dividend of Preferred StockCalculating Dividend of Preferred Stock page 329

=×Value of

Preferred StockPreferred

Dividend RatePreferred

Dividend Amount

$100,000.00 8% = $8,000.00×

CompuForm declare an annual dividend of $24,000. On the date of record, the corporation has issued 1,000 shares of 8%, $100 par-value preferred stock & 16,000 shares of $20 stated-value common stock.

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11

LESSON 11-3

Calculating Amount Available for Common Calculating Amount Available for Common DividendsDividends page 329

Total Amount Available for Dividends

Preferred Dividend Amount

=Amount Available

for Common Dividends

–

$24,000.00 $8,000.00 = $16,000.00–

CompuForm declare an annual dividend of $24,000. On the date of record, the corporation has issued 1,000 shares of 8%, $100 par-value preferred stock & 16,000 shares of $20 stated-value common stock.

CENTURY 21 ACCOUNTING © Thomson/South-Western

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LESSON 11-3

Calculating Dividend Rate for Common StockCalculating Dividend Rate for Common Stockpage 329

Common Dividend Amount

Value of Common Stock

=Common Dividend

Rate÷

$16,000.00 $320,000.00 = 5%÷

CompuForm declare an annual dividend of $24,000. On the date of record, the corporation has issued 1,000 shares of 8%, $100 par-value preferred stock & 16,000 shares of $20 stated-value common stock.

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LESSON 11-3

TERMS REVIEWTERMS REVIEW

declaring a dividend date of declaration date of record date of payment

page 332