On February 5, 2018, Jubilee Rental Corporation's board of directors declared a dividend of $ 0.16, to be paid on March 18, 2018, to the shareholders of record as of the close of business on March 9, 2018. Jubilee has 2,000,000 shares of $ 0.01 par-value common stock authorized with 800,000 shares issued and outstanding. The company has no preferred stock.
Record the declaration of the dividend and the payment of the dividend. Include the proper dates with each journal entry.
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.
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.
Before we can record the journal entry for the declaration of the dividend, let's calculate the amount of the dividend.
Thanks
Record the declaration of the dividend and the payment of the dividend. Include the proper dates with each journal entry.
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.
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.
Before we can record the journal entry for the declaration of the dividend, let's calculate the amount of the dividend.
Thanks
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