1. © 2015 Cengage Learning. All Rights Reserved. Learning Objectives © 2015 Cengage Learning. All Rights Reserved. LO1 Account for the declaration and payment of a cash dividend. LO2 Account for the declaration and payment of a stock dividend. LESSON11-1 Calculating and Journalizing Dividends for a Corporation

2. © 2015 Cengage Learning. All Rights Reserved. Cash Dividends ●Action by a board of directors to distribute corporate earnings to stockholders is called declaring a dividend. ●Three important dates are involved in distributing a dividend: 1.Date of declaration. 2.Date of record. 3.Date of payment. SLIDE 2 Lesson 11-1 LO1 © 2015 Cengage Learning. All Rights Reserved.

3. Dividend Dates SLIDE 3 LO1 Lesson 11-1 © 2015 Cengage Learning. All Rights Reserved. 1. Date of declaration. The date on which a board of directors votes to distribute a dividend is called the date of declaration. 2. Date of record. The date that determines which stockholders are to receive dividends is called the date of record. Stockholders may buy and sell stock at any time. However, only persons listed as stockholders on the date of record will receive dividends. 3. Date of payment. The date on which dividends are actually to be paid to stockholders is called the date of payment.

4. © 2015 Cengage Learning. All Rights Reserved. Calculating a Dividend SLIDE 4 LO1 Lesson 11-1 © 2015 Cengage Learning. All Rights Reserved. The corporation has issued 2,000 shares of 8%, $100 par-value preferred stock and 64,000 shares of $10 par-value common stock. A quarterly dividend of $10,000 has been declared by the Board. 1 1 2 2 3 3

5. © 2015 Cengage Learning. All Rights Reserved. Journalizing the Declaration of a Dividend SLIDE 5 December 15. Hariton’s board of directors declared an annual dividend of $10,000.00. Memorandum No. 456. LO1 Lesson 11-1 Dividends - Common 12/15 6,000 Dividends Payable 12/15 10,000 © 2015 Cengage Learning. All Rights Reserved. Dividends - Preferred 12/15 4,000 1 1 Debit each Dividend Account 2 2 Credit Dividends Payable

6. © 2015 Cengage Learning. All Rights Reserved. Journalizing the Payment of a Dividend SLIDE 6 January 15. Paid cash for annual dividend declared on December 15, $10,000.00. Check No. 745. LO1 Lesson 11-1 Dividends Payable 1/15 10,000 12/15 Decl. 10,000 (new Bal. zero) Cash 1/15 10,000 © 2015 Cengage Learning. All Rights Reserved. 2 2 Credit Cash 1 1 Debit Dividends Payable

7. © 2015 Cengage Learning. All Rights Reserved. Accounts for Stock Dividends ●The payment of a dividend with the stock of the corporation is called a stock dividend. SLIDE 7 LO2 Lesson 11-1 © 2015 Cengage Learning. All Rights Reserved. June 1. Abraham Corporation’s board of directors declared a 2% stock dividend, payable on June 30. The corporation has 100,000 shares of $0.10 par-value common stock outstanding. The current market price of the stock is $5.30. Memorandum No. 235.

8. © 2015 Cengage Learning. All Rights Reserved. Declaring a Stock Dividend SLIDE 8 June 1. Abraham Corporation’s board of directors declared a 2% stock dividend, payable on June 30. The corporation has 100,000 shares of $0.10 par-value common stock outstanding. The current market price of the stock is $5.30. Memorandum No. 235. LO2 Lesson 11-1 © 2015 Cengage Learning. All Rights Reserved.

9. Journal Entry for Stock Dividend Declaration SLIDE 9 June 1. Abraham Corporation’s board of directors declared a 2% stock dividend, payable on June 30. The corporation has 100,000 shares of $0.10 par-value common stock outstanding. The current market price of the stock is $5.30. Memorandum No. 235. LO2 Lesson 11-1 © 2015 Cengage Learning. All Rights Reserved.

10. Journal Entry for Stock Dividend Declaration SLIDE 10 June 1. Abraham Corporation’s board of directors declared a 2% stock dividend, payable on June 30. The corporation has 100,000 shares of $0.10 par-value common stock outstanding. The current market price of the stock is $5.30. Memorandum No. 235. LO2 Lesson 11-1 © 2015 Cengage Learning. All Rights Reserved.

11. Journal Entry for Paying a Stock Dividend SLIDE 11 June 30. Abraham Corporation issued 2,000 shares of common stock in payment of its June 1 stock dividend, $200.00. Memorandum No. 246. LO2 Lesson 11-1 © 2015 Cengage Learning. All Rights Reserved. 1 1 Debit Stock Dividends Distributable 2 2 Credit Capital Stock—Common

12. © 2015 Cengage Learning. All Rights Reserved. Impact of a Stock Dividend SLIDE 12 LO2 Lesson 11-1 © 2015 Cengage Learning. All Rights Reserved. Abraham’s 2% stock dividend should cause the market price to drop from $5.30 to $5.20 per share.

13. © 2015 Cengage Learning. All Rights Reserved. Impact of a Stock Dividend SLIDE 13 LO2 Lesson 11-1 © 2015 Cengage Learning. All Rights Reserved. 1. A corporation’s stockholders may expect a dividend, but the corporation lacks the necessary funds to pay a cash dividend. A stock dividend allows the corporation to pay a dividend without using any financial resources. There are two reasons why companies issue stock dividends: 2. A stock dividend will cause an immediate decline in the market price per share. The total market value of the corporation remains constant, while the number of shares increases. Abraham’s 2% stock dividend should cause the market price to drop from $5.30 to $5.20 per share.

14. © 2015 Cengage Learning. All Rights Reserved. Lesson 11-1 Audit Your Understanding 1.Who determines when and what amount of retained earnings a corporation will distribute as dividends? SLIDE 14 ANSWER The board of directors. Lesson 11-1 © 2015 Cengage Learning. All Rights Reserved.

15. Lesson 11-1 Audit Your Understanding 2.Why does a corporation record a liability when a dividend is declared? SLIDE 15 ANSWER When a board of directors declares a dividend, the corporation is obligated to pay it. Lesson 11-1 © 2015 Cengage Learning. All Rights Reserved.

16. Lesson 11-1 Audit Your Understanding 3.What transaction is recorded on the date of record? SLIDE 16 ANSWER No transaction is recorded on the date of record. Lesson 11-1 © 2015 Cengage Learning. All Rights Reserved.

17. Lesson 11-1 Audit Your Understanding 4.What term is used to describe a stock purchased after the date of record? SLIDE 17 ANSWER Ex-dividend. Lesson 11-1 © 2015 Cengage Learning. All Rights Reserved.

18. Lesson 11-1 Audit Your Understanding 5.What is the normal balance of the account Stock Dividends Distributable? SLIDE 18 ANSWER Credit. Lesson 11-1 © 2015 Cengage Learning. All Rights Reserved.

19. Lesson 11-1 Audit Your Understanding 6.Describe the effect of a stock dividend on (a) the stockholders and (b) the corporation. SLIDE 19 ANSWER a. The stockholders do not receive anything of value. The transaction increases the number of shares outstanding. Each stockholder retains his or her share of the corporation. b. The stock dividend transfers amounts among equity accounts. The market price per share of the stock will decline. Lesson 11-1 © 2015 Cengage Learning. All Rights Reserved.