Glengyle Corporation earned net income of $ 105,000 during the year ended December 31, 2018. On December 15, Glengyle declared the annual cash dividend on its 3% preferred stock (12,500 shares with total par value of $ 125,000) and a $ 1.00 per share cash dividend on its common stock (80,000 shares with total par value of $ 800,000). Glengyle then paid the dividends on January 4, 2019
Answer
A dividend is a distribution by a corporation to its stockholders, usually based on the company's earnings. Dividends usually take one of three forms: Cash; Stock; and Noncash Assets. Most dividends are cash dividends. A corporation declares a dividend before paying it. Only the board of directors has the authority to declare a dividend. The corporation has no obligation to pay a dividend until the board declares one, but once declared, the dividend becomes a legal liability of the corporation. Dividends may be expressed as a dollar amount per share or as a percentage. When dividends are stated as a percentage, the par value of the stock is multiplied by the dividend percentage rate.
There are three relevant dates for dividends:
1.
Declaration date - On the declaration date, the board of directors announces the dividend. Declaration of the dividend creates a liability for the corporation. It is recorded by debiting Retained Earnings and crediting Dividends Payable.
2.
Date of record - As part of the declaration, the corporation announces the record date, which is the date on which the company looks to see who its stockholders are. Only those who are stockholders on the date of record will receive the dividend. The date of record follows the declaration date by a few weeks. There is no journal entry for the date of record.
3.
Payment date - Payment of the dividend usually follows the record date by a week or two. Payment is recorded by debiting Dividends Payable and crediting Cash.
The net effect of a dividend declaration and its payment, is a decrease in assets and a corresponding decrease in stockholders' equity.
a. Journalize for Glengyle Corporation the declaration of the cash dividends on December 15, 2018.
Before we can journalize the declaration of cash dividends the amount of each type of dividend must be calculated. The declaration of cash dividends will include dividends on common and preferred stock. Use the formula below to calculate the common dividends.
Now we can record the declaration of both the preferred and common dividends in one entry. To account for the declaration of a cash dividend, we record a reduction to Retained Earnings and an increase in Dividends Payable. You will need to add the value of the common and preferred dividends. Go ahead and prepare the entry. (Record debits first, then credits. Exclude explanations from any journal entries. Use only a single account to record the dividends.)
b. Journalize for Glengyle Corporation the payment of the cash dividends on January 4, 2019.
Remember that we are now recording a reduction of the liability that was created on December 15, 2018. Think carefully about the accounts affected when a liability is reduced. Now let's prepare the entry.
Did Retained Earnings increase or decrease during 2018? By how much?
Next we must determine whether retained earnings increased or decreased during 2018. Review the formula to calculate the increase or decrease in the Retained Earnings account.
Thanks
Answer
A dividend is a distribution by a corporation to its stockholders, usually based on the company's earnings. Dividends usually take one of three forms: Cash; Stock; and Noncash Assets. Most dividends are cash dividends. A corporation declares a dividend before paying it. Only the board of directors has the authority to declare a dividend. The corporation has no obligation to pay a dividend until the board declares one, but once declared, the dividend becomes a legal liability of the corporation. Dividends may be expressed as a dollar amount per share or as a percentage. When dividends are stated as a percentage, the par value of the stock is multiplied by the dividend percentage rate.
There are three relevant dates for dividends:
1.
Declaration date - On the declaration date, the board of directors announces the dividend. Declaration of the dividend creates a liability for the corporation. It is recorded by debiting Retained Earnings and crediting Dividends Payable.
2.
Date of record - As part of the declaration, the corporation announces the record date, which is the date on which the company looks to see who its stockholders are. Only those who are stockholders on the date of record will receive the dividend. The date of record follows the declaration date by a few weeks. There is no journal entry for the date of record.
3.
Payment date - Payment of the dividend usually follows the record date by a week or two. Payment is recorded by debiting Dividends Payable and crediting Cash.
The net effect of a dividend declaration and its payment, is a decrease in assets and a corresponding decrease in stockholders' equity.
a. Journalize for Glengyle Corporation the declaration of the cash dividends on December 15, 2018.
Before we can journalize the declaration of cash dividends the amount of each type of dividend must be calculated. The declaration of cash dividends will include dividends on common and preferred stock. Use the formula below to calculate the common dividends.
Now we can record the declaration of both the preferred and common dividends in one entry. To account for the declaration of a cash dividend, we record a reduction to Retained Earnings and an increase in Dividends Payable. You will need to add the value of the common and preferred dividends. Go ahead and prepare the entry. (Record debits first, then credits. Exclude explanations from any journal entries. Use only a single account to record the dividends.)
b. Journalize for Glengyle Corporation the payment of the cash dividends on January 4, 2019.
Remember that we are now recording a reduction of the liability that was created on December 15, 2018. Think carefully about the accounts affected when a liability is reduced. Now let's prepare the entry.
Did Retained Earnings increase or decrease during 2018? By how much?
Next we must determine whether retained earnings increased or decreased during 2018. Review the formula to calculate the increase or decrease in the Retained Earnings account.
Thanks
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