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
CENTURY 21 ACCOUNTING © Thomson/South-Western
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.
CENTURY 21 ACCOUNTING © Thomson/South-Western
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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.
CENTURY 21 ACCOUNTING © Thomson/South-Western
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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.
CENTURY 21 ACCOUNTING © Thomson/South-Western
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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.