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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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What are the four important dates in regard to a cash dividend? What journal entry does the corporation make on each date?

To determine

Specify the four dates that are important in regard to the cash dividend and also state the journal entry that will be recorded by the corporation on 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.

  • The four dates that are important in regard to the cash dividend are given below:
    1. 1. Declaration date

      2. Ex-dividend date

      3. Date of record

      4. Date of payment

  • The entry that is provided on  declaration date by the corporation is given below:
DateAccount Titles and explanationDebit ($)Credit ($)
 Retained earningsxxx 
      Dividend payable xxx
 ( To record declaration of cash dividend payable)  

(Table 1)

  • No entry is made for ex-dividend date by the corporation as the dividend that cannot be claimed by the stockholder because the stockholder did not hold the stock, two days prior to date of record. A stockholder is entitled for dividend only if he holds the stock as on the date of record.
  • On the date of record the company makes a memorandum entry which indicates that date of record has been reached and showing the future dividend payment date.
  • On date of payment the corporation makes the entry as to eliminate the liability and reduce cash.

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