Section 2Distributing the Earnings of a Corporation What You’ll Learn  Why and how corporations distribute their earnings.  How to record dividends on.

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Section 2Distributing the Earnings of a Corporation What You’ll Learn  Why and how corporations distribute their earnings.  How to record dividends on preferred stock.  How to record dividends on common stock. What You’ll Learn  Why and how corporations distribute their earnings.  How to record dividends on preferred stock.  How to record dividends on common stock.

Why It’s Important When the board of directors of a corporation decides to distribute profits in the form of dividends, a general journal entry is recorded. Why It’s Important When the board of directors of a corporation decides to distribute profits in the form of dividends, a general journal entry is recorded. Section 2Distributing the Earnings of a Corporation (cont'd.) Key Terms  dividend Key Terms  dividend

Dividends  The corporation’s board of directors declares, or authorizes, dividends.  Before a dividend is declared, the corporation should have a sufficient amount of cash available to pay the dividend.  There must be an adequate balance in the Retained Earnings account.  The corporation’s board of directors declares, or authorizes, dividends.  Before a dividend is declared, the corporation should have a sufficient amount of cash available to pay the dividend.  There must be an adequate balance in the Retained Earnings account. Section 2Distributing the Earnings of a Corporation (cont'd.)

Dividends (cont'd.)  A separate account named Dividends is used to record dividends declared. The Dividends account is a contra- stockholders’ equity account.  A liability account, Dividends Payable, is used to record the amount of dividends that will be paid on the payment date.  A separate account named Dividends is used to record dividends declared. The Dividends account is a contra- stockholders’ equity account.  A liability account, Dividends Payable, is used to record the amount of dividends that will be paid on the payment date. Section 2Distributing the Earnings of a Corporation (cont'd.) Dividends Credit – Decrease Side Debit + Increase Side Normal Balance

Three Important Dates in the Dividend Process Section 2Distributing the Earnings of a Corporation (cont'd.)

Dividends on Preferred Stock Section 2Distributing the Earnings of a Corporation (cont'd.) Business Transaction On November 15, the board of directors for On Your Mark declared an annual cash dividend on the 250 shares of preferred $6 stock issued. The dividend is payable to preferred stockholders of record on November 29. The dividend will be paid on December 15. The total amount of the preferred dividends is $1,500 (250 shares  $6), Memorandum 215. JOURNAL ENTRY

Date of Payment Section 2Distributing the Earnings of a Corporation (cont'd.) Business Transaction On December 15, On Your Mark issued Check 1373 for $1,500 in payment of the dividend on preferred stock declared November 15. JOURNAL ENTRY

Check Your Understanding What two conditions should exist before a cash dividend is declared? Section 2Distributing the Earnings of a Corporation (cont'd.)