1. CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 11-3 Calculating and Journalizing Dividends for a Corporation

2. CENTURY 21 ACCOUNTING © Thomson/South-Western Equity & the Dividend Account Equity Retained Earnings for a corporation are like capital for a partnership or sole proprietorship Retained Earnings shows total of all profits kept in a business..Dividend Account Corporate earnings distributed to stockholders are dividends Compare to Drawing in a sole proprietorship Classified as stockholder’s equity 2 LESSON 11-3

3. CENTURY 21 ACCOUNTING © Thomson/South-Western Dividends Action by the board of directors to distribute corporate earnings to stockholders is called declaring a dividend The board determines when & what amount of the retained earnings will be distributed Board does not have to declare a dividend if a corporation does not earn enough income to pay dividends 3 LESSON 11-3

4. CENTURY 21 ACCOUNTING © Thomson/South-Western Dividend Dates Three important dates are involved in distributing a dividend: Date of declaration Date of record Date of payment Transactions are recorded in a corporation’s accounts on two of the three dates Date of declaration Date of payment 4 LESSON 11-3

5. CENTURY 21 ACCOUNTING © Thomson/South-Western Dividend Dates Date of declaration: the date on which a board of directors votes to distribute a dividend Date of record: The date that determines which stockholders are to receive dividends Date of payment: The date on which dividends are actually to be paid to stockholders 5 LESSON 11-3

6. CENTURY 21 ACCOUNTING © Thomson/South-Western 6 LESSON 11-3 JOURNALIZING DECLARATION OF DIVIDEND page 330 Date of declaration: the date on which a board of directors votes to distribute a dividend Journalize in general journal Debit Dividends – increase Credit Dividends Payable - increase

7. CENTURY 21 ACCOUNTING © Thomson/South-Western 7 LESSON 11-3 JOURNALIZING PAYMENT OF A DIVIDEND page 330  Date of payment: The date on which dividends are actually to be paid to stockholders  Journalized in Cash Payments journal  Debit dividends payable (liability)  Credit cash (decreases)

8. CENTURY 21 ACCOUNTING © Thomson/South-Western 8 LESSON 11-3  Preferred stockholders are paid before other stockholders  Par value time percentage times number shares Calculating Value of Preferred Stock page 328 Number of Preferred Shares Par Value= Value of Preferred Stock × 1,000$100.00=$100,000.00 × CompuForm declare an annual dividend of $24,000. On the date of record, the corporation has issued 1,000 shares of 8%, $100 par-value preferred stock & 16,000 shares of $20 stated-value common stock.

9. CENTURY 21 ACCOUNTING © Thomson/South-Western 9 LESSON 11-3 Calculating Value of Common Stock page 328 Number of Common Shares Stated Value= Value of Common Stock × 16,000$20.00=$320,000.00 × CompuForm declare an annual dividend of $24,000. On the date of record, the corporation has issued 1,000 shares of 8%, $100 par-value preferred stock & 16,000 shares of $20 stated-value common stock.

10. CENTURY 21 ACCOUNTING © Thomson/South-Western 10 LESSON 11-3 Calculating Dividend of Preferred Stock page 329 = × Value of Preferred Stock Preferred Dividend Rate Preferred Dividend Amount $100,000.008%=$8,000.00 × CompuForm declare an annual dividend of $24,000. On the date of record, the corporation has issued 1,000 shares of 8%, $100 par-value preferred stock & 16,000 shares of $20 stated-value common stock.

11. CENTURY 21 ACCOUNTING © Thomson/South-Western 11 LESSON 11-3 Calculating Amount Available for Common Dividends page 329 Total Amount Available for Dividends Preferred Dividend Amount = Amount Available for Common Dividends – $24,000.00$8,000.00=$16,000.00 – CompuForm declare an annual dividend of $24,000. On the date of record, the corporation has issued 1,000 shares of 8%, $100 par-value preferred stock & 16,000 shares of $20 stated-value common stock.

12. CENTURY 21 ACCOUNTING © Thomson/South-Western 12 LESSON 11-3 Calculating Dividend Rate for Common Stock page 329 Common Dividend Amount Value of Common Stock = Common Dividend Rate ÷ $16,000.00$320,000.00=5% ÷ CompuForm declare an annual dividend of $24,000. On the date of record, the corporation has issued 1,000 shares of 8%, $100 par-value preferred stock & 16,000 shares of $20 stated-value common stock.

13. CENTURY 21 ACCOUNTING © Thomson/South-Western 13 LESSON 11-3 TERMS REVIEW declaring a dividend date of declaration date of record date of payment page 332