Retained Earnings  Date of Payment

- Represent the component of the shareholder’s equity arising from - the corporation settles its liability on this date
the retention of assets generated from the profit-directed activities
Notes:
of the corporation
 Dividends are recognized on date of declaration
Prior Period Errors  Dividends declared are debited against Retained Earnings
- omissions from and other misstatements of the entity’s financial  No entry is required in Date of Record
statements for one or more prior periods that are discovered in the
Forms of Dividends:
current period.

Kinds of Retained Earnings:  Cash Dividends

- upon declaration of dividends, the proforma entries are:
 Unappropriated Retained Earnings
Retained Earnings xxx
- represent that portion which is FREE and can be declared as
Cash Dividends Payable xxx
dividends to stockholders
 Appropriated Retained Earnings
- upon date of payment, the entries are:
- represent that portion of which is RESTRICTED and therefore
not available for any declaration Cash Dividends Payable xxx
Cash xxx
Pertinent entries for appropriation/restriction of Retained Earnings:
Retained Earnings xxx  Property Dividends
Appropriated Retained Earnings xxx - (or dividends in kind) are distribution to shareholders that is
payable in non-cash assets. In declaring property dividends,
For the reversal of the appropriation: look for the fair value of the asset(s) to be distributed.
Appropriated Retained Earnings xxx
Retained Earnings xxx - upon declaration of dividends, the entries are:

Dividends Retained Earnings xxx

- distribution to shareholders of cash, property or stocks from Property Dividends Payable xxx
unrestricted retained earnings on the basis of all issued and fully - upon date of distribution: the entries are:
paid shares, and all subscribed par value shares EXCEPT treasury
shares (if there is a gain)
Three important dates: Property Dividends Payable xxx
Investment in Equity Securities xxx
 Date of Declaration
- the date on which the board of directors declares the dividend. Gain on Property Dividends xxx
This date is recorded in the minute’s book. (if there is a loss)
 Date of Record Property Dividends Payable xxx
- list of shareholders entitled to the declared dividends is Loss on Property Dividends xxx
prepared at the date of record Investment in Equity Securities xxx
1
 Share Dividends Share Splits
- Two Classifications:
- the practice of reducing the par or stated value per share with a
o Small Share Dividends – dividends declared is less than 20%
corresponding increase in the number of authorized, issued and
of previously outstanding shares
outstanding shares.
o Large Share Dividends – dividends declared is 20% or more
of the previously outstanding shares - Reverse Splits can be accomplished by increasing the par or stated
value of the corporation’s share and reducing the shares
- Order of priority when declaring Small Share Dividends:
outstanding.
1. Fair value of shares or market value.
2. If fair value is lower than the par or stated value, use the par Dividends on Preference Share
or stated value.
 Non-Cumulative Preference Shares
(for declaration:) - these shares entitle the holders only to the payment of current
Retained Earnings (at FMV) xxx dividends
Shares Distributable (at par) xxx  Cumulative Preference Shares
Share Premium (excess of FMV over par) xxx - these shares entitle the holder to payment not only of current
(for distribution:) dividends but also of back dividends or dividends in arrears
Shares Distributable xxx  Non-Participating Preference Shares
Ordinary/Preference Shares xxx - these shares entitle the holders only to the extent of the
stipulated preference dividend
- In declaring Large Share Dividends, the par or stated value will  Participating Preference Shares
follow: - these shares entitle the holders to participate with the holders
(for declaration:) of ordinary shares pro-rata in the remainder after the ordinary
Retained Earnings (at par) xxx shareholders have received their initial share based on the
Shares Distributable (at par) xxx preference rate.

(for distribution:) Combination of feature:

Shares Distributable xxx
Ordinary/Preference Shares
 Liquidating Dividends
- these are not distributions of earnings but rather returns of
capital to the investing shareholder. This can only be done
when the corporation is under dissolution and liquidation or
the corporation is engaged in exploration of natural resources
1. Non-Cumulative and Non-Participating (will prevail in the
xxx
absence of an agreement)
2. Non-Cumulative and Participating
3. Cumulative and Non-Participating
4. Cumulative and Participating