1. © 2014 Cengage Learning. All Rights Reserved. Learning Objectives © 2014 Cengage Learning. All Rights Reserved. LO7 Explain the relationship between retained earnings and dividends. LO8 Account for the declaration and payment of dividends.

2. © 2014 Cengage Learning. All Rights Reserved. Think & Ink ●How do owners of a corporation benefit from efficiency of the corporation? ●How much do they actually benefit, and how do you know? SLIDE 2

3. © 2014 Cengage Learning. All Rights Reserved. Stockholders’ Equity Accounts Used by a Corporation SLIDE 3 LO7 Lesson 11-3 (3000)STOCKHOLDERS’ EQUITY 3110Capital Stock 3120Paid-In Capital in Excess of Par 3130Retained Earnings 3140Dividends 3150Income Summary

4. © 2014 Cengage Learning. All Rights Reserved. Stockholders’ Equity Accounts Used by a Corporation ●Capital Stock account is a single owner’s equity account used for investment of all owners ●Net income increases total stockholders’ equity ●An amount earned by a corporation and not yet distributed to stockholders is called retained earnings. ●Earnings distributed to stockholders are called dividends. SLIDE 4 LO7 Lesson 11-3

5. © 2014 Cengage Learning. All Rights Reserved. Stockholders’ Equity Accounts Used by a Corporation ●Corporation’ dividend account is a temporary account similar to a proprietorship’s drawing account ●Each time dividend is declared, stockholders’ equity account, Dividends, is debited ●Balance of this account closed to Retained Earnings account at end of fiscal period SLIDE 5

6. © 2014 Cengage Learning. All Rights Reserved. Research ●Research a company’s payout and retained earnings ratios ●Without speaking to one another, write your company’s name on the board and the payout ratio in order from smallest to greatest ●Then circle the ratio you think is best for a company ●Be prepared to explain why SLIDE 6

7. © 2014 Cengage Learning. All Rights Reserved. Closing ●What accounts do you believe are used by a corporation to declare and pay dividends to stockholders? SLIDE 7

8. © 2014 Cengage Learning. All Rights Reserved. Do Now ●What did we discuss last class? ●Who makes the decision as to how much each stockholder should be paid? ●How do you know? SLIDE 8

9. © 2014 Cengage Learning. All Rights Reserved. Declaring a Dividend ●A group of persons elected by the stockholders to govern a corporation is called the board of directors. ●Action by a board of directors to distribute corporate earnings to stockholders is called declaring a dividend. ●Dividends normally declared on one date and paid on a later date ●Corporation obligated to pay once declared ●Liability recorded into corporation’s account and cannot exceed balance of Retained Earnings account SLIDE 9 LO8 Lesson 11-3

10. © 2014 Cengage Learning. All Rights Reserved. Declaring a Dividend SLIDE 10 LO8 Lesson 11-3 December 15. ThreeGreen’s board of directors declared a quarterly dividend of $0.05 per share; capital stock issued is 75,000 shares; total dividend, $3,750.00. Date of payment is January 15. Memorandum No. 43. 1 1 Date Dividends 3,750.00 Dividends Payable 3,750.00 2 2 Account Debited 3 3 Memorandum Number 5 5 Account Credited 4 4 Debit Amount 6 6 Credit Amount

11. © 2014 Cengage Learning. All Rights Reserved. January 15. Paid cash for quarterly dividend declared column. Paying Declared Dividends SLIDE 11 LO8 Lesson 11-3 1 1 Date 4 4 Debit Amount 5 5 Credit Amount 2 2 Account Title 3 3 Check Number Dividends Payable 04/15 Paid3,750.00 07/15 Paid3,750.00 10/15 Paid3,750.00 01/15 Paid3,750.00 03/15 Paid3,750.00 06/15 Paid3,750.00 09/15 Paid3,750.00 12/15 Paid3,750.00 Cash 01/15 Paid3,750.00

12. © 2014 Cengage Learning. All Rights Reserved. AccountKing/Queen: ●Five head-to-head competitions of Work Together 11-3 ●Winner advance ●Individual with best score who advanced gets first-round bye ●Other four compete head-to-head for On-Your-Own 11-3 (those out of competition still complete) ●Two advance for a total of three students, who compete with whiteboards for Audit Your Understanding ●Whiteboards: Audit Your Understanding 11-3 ●If one of you who is already out gets all questions correct before others, you the X.C. point ●Otherwise, one of three remaining gets X.C. point SLIDE 12

13. © 2014 Cengage Learning. All Rights Reserved. Lesson 11-3 Audit Your Understanding 1.Under what major chart of accounts division are the owners’ equity accounts for a corporation normally listed? SLIDE 13 ANSWER Stockholders’ Equity Lesson 11-3

14. © 2014 Cengage Learning. All Rights Reserved. Lesson 11-3 Audit Your Understanding 2.Why is only one account maintained for the investment of all owners of a corporation? SLIDE 14 ANSWER Most corporations have many stockholders. It is not practical to have a separate owner’s equity account for each stockholder. Lesson 11-3

15. © 2014 Cengage Learning. All Rights Reserved. Lesson 11-3 Audit Your Understanding 3.Which account does a corporation use to record earnings not yet distributed to stockholders? SLIDE 15 ANSWER Retained Earnings Lesson 11-3

16. © 2014 Cengage Learning. All Rights Reserved. Lesson 11-3 Audit Your Understanding 4.How and when do net income and dividends impact permanent stockholders’ equity accounts? SLIDE 16 ANSWER At the end of the fiscal period, temporary accounts are closed to Retained Earnings. Net income increases Retained Earnings; dividends reduce Retained Earnings. Lesson 11-3

17. © 2014 Cengage Learning. All Rights Reserved. Lesson 11-3 Audit Your Understanding 5.What action is required before a corporation can distribute income to its stockholders? SLIDE 17 ANSWER The board of directors must declare a dividend. Lesson 11-3

18. © 2014 Cengage Learning. All Rights Reserved. Pair & Share: ●At your own pace or with a partner, complete Application Problems 11-1 thru 11-3 ●What is not finished in class must be finished for homework, along with the chapter 11 study guide SLIDE 18

19. © 2014 Cengage Learning. All Rights Reserved. Closure ●http://padlet.com/wall/82gtribcwpzshttp://padlet.com/wall/82gtribcwpzs ●Red, Yellow, Green SLIDE 19