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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Problems may be encountered in accounting for transactions involving the shareholders’ equity section of the balance sheet.

Required:

  1. 1. Explain the significance of the four dates that are important in accounting for cash dividends to shareholders. State the journal entry, if any, needed at each date.
  2. 2. Assume retained earnings can be used for stock dividends distributable in shares. What is the effect of an ordinary 10% common stock dividend on retained earnings and total shareholders’ equity?

1.

To determine

Describe the significance of the four dates that are considered important in accounting for cash dividends to shareholder and also state any journal entry if required for the each date.

Explanation

Dividends:

This is the amount of cash distributed to stockholders by a company out its earnings, according to their proportion of shares invested in the company.

  • Date of declaration indicates the date on which the liability for dividend payable has been recorded by making a debit to the retained earnings and credit to the dividends payable.
  • Date of  shareholders of  record  is the date  that ...

2.

To determine

Specify the effect of an ordinary 10% common stock dividend on retained earnings and total stockholder’s equity by assuming that retained earnings can be used for stock dividends that are distributable in shares.

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