DIVIDENDS. What are dividends? Dividends are distribution to shareholders of corporate earnings in proportion to the number of shares held by them. Distributions.

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Presentation transcript:

DIVIDENDS

What are dividends? Dividends are distribution to shareholders of corporate earnings in proportion to the number of shares held by them. Distributions may take the form of cash, non-cash assets, notes and shares of company’s own stock.

Cash Dividends Cash dividends are dividends that are distributable in the form of cash. This is the most common type of dividend: Retained EarningsXXX Cash Dividends PayableXXX (To record decla

Journal Entry for Cash Dividends Retained EarningsXXX Cash Dividends PayableXXX (To record declaration of dividends) Cash Dividends PayableXXX CashXXX (To record payment of dividends)

Scrip Dividends Scrip Dividends are in fact deferred cash dividends. A scrip dividend is declared when the corporation has sufficient Retained Earnings balance but not sufficient funds at that time for a cash dividend. Scrip dividends consist of a written promise to pay certain amounts at some future date.

Journal Entry for Scrip Dividends Retained Earnings XXX Scrip Dividends PayableXXX (To record the declaration of dividends) Scrip Dividends PayableXXX Interest ExpenseXXX Cash XXX (To record payment of dividends plus interest)

Property Dividends Dividends distributable in the form of non- cash assets. Retained EarningsXXX Property Dividends PayableXXX (To record the declaration of dividends) Property Dividends Payable Assets (To record distribution of dividends)

Stock Dividends A share capital dividend or stock dividend is a distribution to shareholders in the form of corporation’s own share capital. This type of dividend does not affect total assets and total shareholder’s equity rather it simply represents a transfer of capital from retained earnings to contributed capital.

DIVIDENDS ON PREFERENCE SHARES

Dividends on Preference Shares When dividends are paid, the dividend requirements on preference shares must be paid before any payment can be made to ordinary shares. The preference shares may be: 1.Cumulative 2.Noncumulative 3.Participating 4.Nonparticipating

Illustrative Problem The Fortune Corp. declared and paid cash dividends for the last three years as follows: 2010 – P120,000; 2011 – P200,000; 2012 – P300,000. No dividends were paid for two years prior to the capital structure of the company for the last three years follows: 10% Preference share capital, P100 par, 5,000 shares outstanding – P500,000 Ordinary share capital, P50 par, 5,000 shares outstanding The annual dividend requirement on preference shares is P50,000 or P10 per share. At the beginning of 2010, dividends are in arrears. For two years.

Case 1 – The preference shares are noncumulative and nonparticipating

Case 2 – The preference shares are cumulative but not participating

Case 3 – The preference shares are noncumulative but fully participating

Case 4 – The preference shares are cumulative and fully participating

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