1. Unit 7 – Chapter 13 (2 nd half) Page 584 Corporations: Organization, Stock Transactions and Dividends 1

2. Cash Dividends - page 584 A cash distribution of earnings by a corporation to its stockholders is called a cash dividend. There are usually three conditions that a corporation must meet to pay a cash dividend. 1.Sufficient retained earnings 2.Sufficient cash 3.Formal action by the board of directors 2

3. First is the date of declaration. This is the date the board approved the dividend to the stockholders. The second important date is the date of record. This is the date determines who will receive the dividend. It sets a “cutoff” for eligible stockholders. The third important date is the date of payment. This is the date the dividend is paid to the stockholders. Three Important Dividend Dates 3

4. Example Exercise 13-3 (Page 586) The important dates in connection with a cash dividend of $75,000 on a corporation’s common stock are February 26, March 30, and April 2. Journalize the entries required on each date. FYI – a cash dividend will reduce Retained Earnings at the end of the accounting period. We will debit Retained Earnings and credit Cash Dividend in the closing process. 4

5. Example Exercise 13-3 (Page 586) Feb26Cash Dividends75,000 Cash Dividends Payable75,000 Mar30No entry Apr2Cash Dividends Payable75,000 Cash75,000 5

6. A distribution of dividends to stockholders in the form of the firm’s own shares is called a stock dividend. Stock Dividends – page 586 6

7. Example Exercise 13-4 (Page 587) Vienna Highlights Corporation has 150,000 shares of $100 par common stock outstanding. On June 14, Vienna Highlights declared a 4% stock dividend to be issued August 15 to stockholders of record on July 1. The market price of the stock was $110 per share on June 14. Journalize the entries required on June 14, July 1 and August 15. How many shares of stock are we talking about here? 7

8. Example Exercise 13-4 (Page 587) 150,000 shares of $100 par common stock and we declared a 4% stock dividend 150,000 shares x 4% = 6000 shares The journal entries to record this dividend will move the amount of the stock dividend from Retained Earnings to Paid-in Capital using the market price (Common stock and Paid-in Capital in Excess will both increase in the end). 8

9. Example Exercise 13-4 (Page 587) June14Stock Dividends (150,000 x 4% x $110)660,000 Stock Dividends Distributable (6,000 x $100)600,000 Paid-In Capital in Excess of Par – CS60,000 July1No entry required. Aug15Stock Dividends Distributable600,000 Common Stock600,000 9

10. Occasionally, a corporation buys back its own stock to provide shares for resale to employees, for reissuing as a bonus to employees, or for supporting the market price of the stock. This stock is referred to as treasury stock. Treasury Stock Transactions 10

11. Example Exercise 13-5 (Page 588) On May 3, Buzz Off Corporation reacquired 3,200 shares of its common stock at $42 per share. On July 22, Buzz Off sold 2,000 of the reacquired shares at $47 per share. On August 30, Buzz Off sold the remaining shares at $40 per share. Journalize the transactions of May 3, July 22, and August 30. Hint – Remember when you remove something from an account you have to remove the amount you placed it in there at. May 3 rd First. 11

12. Example Exercise 13-5 (Page 588) May3Treasury Stock (3,200 x $42)134,400 Cash134,400 12 Okay on to the second entry: On July 22, Buzz Off sold 2,000 of the reacquired shares at $47 per share.

13. Example Exercise 13-5 (Page 588) July22Cash (2,000 x $47)94,000 Treasury Stock (2,000 x $42)84,000 Paid-in Capital from Sale of Treasury Stock [2,000 x ($47 – $42)]10,000 Now the last entry: On August 30, Buzz Off sold the remaining shares at $40 per share. 13

14. Example Exercise 13-5 (Page 588) Aug.30Cash (1,200 x $40)48,000 Paid-in Capital from Sale of Treasury Stock [1,200 x ($42 – $40)]2,400 Treasury Stock (1,200 x $42)50,400 14

15. Objective 6 – Page 589 Reporting Stockholders’ Equity The chapter covers a couple of methods for reporting stockholders’ equity on pages 589 through 593. Make sure you read through these methods and look at the examples located within the textbook. 15

16. A corporation sometimes reduces the par or stated value of their common stock and issues a proportionate number of additional shares. This process is called a stock split. Since a stock split changes only the par or stated value and the number of shares outstanding, it is not recorded by a journal entry. The details of the stock split are normally disclosed in the notes to the financial statements. Stock Splits - Page 594 16

17. Questions??? This unit’s textbook exercises are: –Problem 13-3A (like EE 13-5) –Problem 13-5A (a review of everything) Use Problem 13-3B and Problem 13-5B with the solutions from Doc Sharing to help you. Have a great weekend!! 17

18. 18