Dividends

Three significant dates on the declaration and payment of dividends:

Date of Declaration the date when dividends are formally declared, and
the liability to distribute dividends is recognized:
Retained earnings

xxxx

Dividends payable

xxxx

Date of Record the corporation determines who will be entitled to the

dividends. No entry required on this date.

Date of Distribution the date the dividends are actually distributed to

the shareholders:
Dividends payable

xxxx

Cash, Property or Share Capital

xxxx

Forms of Dividends

Cash Dividends
The Board Of Directors declared a dividend of 5% per share on June 1, 2015 to
shareholders of record as of July 15, 2015, payable on August 31, 2015. The
corporate records show that there are 100,000 issued shares (10,000 of which are in
the treasury) and there are 30,000 subscribed shares which are not delinquent. The
par value of the shares is P100.
Date of Declaration Declared a dividend of 5% per share on June 1, 2015
Date of Record record as of July 15, 2015
Date of Distribution payable on August 31, 2015
COMPUTATIONS
Issued Shares

100,000

Less: Treasury

(10,000)

Add SUBCRIBED SHARES

Shares Entitled to Dividends

90,000
30,000
120,000

DIVIDENDS DECLARED(5% x P100 Par Value)

P5

Journal ENTRY
Retained earnings(120,000x5)

600,000

Cash Dividends payable(120,000x5)

Cash Dividends Payable

600,000

600,000

Cash

600,000

What IF WALANG TREASURY?

The Board Of Directors declared a dividend of 5% per share on June 1, 2015 to
shareholders of record as of July 15, 2015, payable on August 31, 2015. The
corporate records show that there are 100,000 issued shares and there are 30,000
subscribed shares which are not delinquent. The par value of the shares is P100.

COMPUTATIONS
Issued Shares

100,000

Add SUBCRIBED SHARES

30,000

Shares Entitled to Dividends

DIVIDENDS DECLARED(5% x P100 Par Value)

130,000
P5

Journal ENTRY
Retained earnings(130,000x5)

650,000

Cash Dividends payable(130,000x5)

Cash Dividends Payable
Cash

650,000
650,000

Property Dividends
Example Problem

650,000

On July 1, the corporation Acquired 50,000 of meralco shares at a cost of

P750,000 or P15 each. The board of directors of more power corp. declared on
nov. 15 a dividend of one share of meralco stock for every 10 shares of more
power stocks owned. On this date Meralco shares are selling at P20 per share.
More Power has 100,000 common shares issued and outstanding, P100 par
value. The Meralco Shares were distributed on December 15.
Pag sinabing ACQUIRED=BUMILI
Date of Declaration: Nov. 15
(1share of Meralco Stock=10 shares of More Power Stock)
Date of Distribution: Dec. 15
Computation
Issued Shares: 100,000(MORE POWER COMPANY)
No. of Meralco Shares: 10
100,000/10= 10,000xP20 =P200,000
Journal Entry
Retained Earnings
200,000
Property Dividends Payable

200,000

Property Dividends Payable

200,000
Investment in Meralco Stocks 200,000
Sa case na ito yung Dividends ay INVESTMENT MO SA IBANG COMPANY.
DAGDAG NA STOCKS. Wala kang natanggap ng CASH pero may STOCKS
KA na nadagdag.
Note: mababago ang Meralco Stocks kasi may pumasok na bagong
Investment.
Current Market Value(50,000xP20)
1,000,000
Less: Acquisition Cost(amount magkano naipagbili 50,000xP15) 750,000
Additional Value of Meralco Stocks
250,000
Journal Entry
Investment in Meralco Stocks 250,000
Unrealized Gain on Stock Investment 250,000

Example 2
3s Food Industries, Inc. based in Pulilan, Bulacan has 5,000 shares
investment in another entity accounted for as nonmarketable equity
investment. The carrying amount of his investment is P500,000. On dec.
1,2015, this growing food corporation declared as property dividend this
investment to all its outstanding par values shares to be distributed on dec.

15,2015. The market value of the investment at the declaration date was
P950,000. There was no change in fair value on the settlement date.
Date of Declaration: Dec. 1, 2015
Date of Distribution: Dec. 15, 2015
Journal Entries
Retained earnings
950,000
Property Dividends Payable
950,000
TANDAAN: LAGING NASA MARKET VALUE/ FAIR MARKET VALUE
Property Dividends Payable
950,000
Investment in Equity Securities
Gain on Distribution of Property Dividends

500,000
450,000

Sa case na ito yung Dividends ay INVESTMENT MO SA IBANG COMPANY

na ang pangalan ay Equity Securities. DAGDAG NA STOCKS. Wala kang
natanggap ng CASH pero may STOCKS KA na nadagdag. Ang iinvest mo
lang dapat ay 500,000. Pero sobra ang Dividends na natanggap mo kaya
may GAIN na 450,000

LIABILITY DIVIDENDS
SCRIP DIVIDENDS. PROMISE TO PAY
WITH ADDITIONAL INTEREST PAID
EXAMPLE: Z Company declared a scrip dividend of P10 on January 30, 2015 to
shareholders of record as of February 16, 2015 payable at 10% interest on
March 31, 2015. The stock transfer book shows 10,000 shares issued and
outstanding on date of record.
Date of declaration: declared a scrip dividend of P10 on January 30, 2015
Date of Record: record as of February 16, 2015 with 10% interest on march 31,
2015

Computation
Issued shares 10,000xP10 =
Interest at 10%(100,000x10%x2/12)

100,000
1,667
101,667
Note. 2 months Jan. 30 to mar. 31 kaya 2/12
Journal Entry
Retained Earnings

100,000

Scrip Dividends Payable

Scrip Dividends Payable
Interest Expense
Cash

100,000
100,000
1,667
101,667

Stock Dividends

Note: Issuance of less than 20% is considered small stock dividend

and can be valued at Fair Market Value, creating an additional paid-in
capital (share premium).
Example:

15% stock dividend=SMALL STOCK DIVIDEND

Journal Entries
Retained Earnings(15%x10,000issued sharesxP150) 225,000
Stock Dividend for Distribution(15%x10,000xP100)
150,000
Share Premium
75,000

Payment of Dividend
Stock Dividend for Distribution
Share Capital

150,000
150,000

Kapag Small Stock Dividends. Yung mas mababa sa 20% ang

gagamitin sa Retained Earnings at sa distributions at yung STATED
VALUE NA AVAILABLE

Issuance of 20% or more is considered large stock dividend and

should be capitalized at par value.

A 20% stock dividend was declared when the market value of the stock was
P150 per share.
Kapag LARGE Stock Dividends. Yung mas mataas sa 20% ang
gagamitin sa Retained Earnings at sa distributions at yung STATED
VALUE Par value. Sa problem na yan P100 par.
JOURNAL ENTRIES
Retained Earnings(20%x10,000sharesxP100)

200,000

Stock Dividend for Distribution(20%x10,000sharesxP100)

200,000

Payment for Dividends

Stock Dividend for Distribution
Share Capital

200,000
200,000

Types of Preferred Shares

Preferred shares have preferential treatment depending on its features:
Non cumulative: Entitled only to current dividends.
Cumulative: Entitled to current and back dividends.
Participating: Entitled to participate with holders of

ordinary shares.

Non participating: Only to the extent of the stipulated preference dividend.

1. Non cumulative and non participating

2. Non cumulative and participating
3. Cumulative and non participating
4. Cumulative and participating

Restrictions or appropriations in retained earnings means designating

portion of retained earnings for future expenses and/or capital
expenditures, contingencies or expansions.
Journal Entry:
Retained Earnings

xxxx

Appropriated Retained Earnings

xxxx

The restricted portion will not be available for dividend distribution.

The appropriation has no effect on assets and shareholders equity.