DIVIDENDS

What are dividends?

Dividends are distribution to
shareholders of corporate
earnings in proportion to the
number of shares held by them.
Distributions may take the form of
cash, non-cash assets, notes and
shares of companys own stock.
 Cash Dividends
Cash dividends are dividends that
are distributable in the form of cash.
This is the most common type of
dividend:

Retained Earnings XXX

Cash Dividends Payable XXX
(To record decla
 Journal Entry for Cash
Dividends
Retained Earnings XXX
Cash Dividends Payable XXX
(To record declaration of dividends)

Cash Dividends Payable XXX

Cash XXX
(To record payment of dividends)
 Scrip Dividends
Scrip Dividends are in fact deferred
cash dividends. A scrip dividend is
declared when the corporation has
sufficient Retained Earnings balance
but not sufficient funds at that time
for a cash dividend.
Scrip dividends consist of a written
promise to pay certain amounts at
some future date.
 Journal Entry for Scrip
Dividends
Retained Earnings XXX
Scrip Dividends Payable XXX
(To record the declaration of dividends)

Scrip Dividends PayableXXX

Interest Expense XXX
Cash XXX
(To record payment of dividends plus
interest)
 Property Dividends
Dividends distributable in the form of
non-cash assets.
Retained Earnings XXX
Property Dividends Payable XXX
(To record the declaration of dividends)
Property Dividends Payable
Assets
(To record distribution of dividends)
 Stock Dividends
A share capital dividend or stock
dividend is a distribution to
shareholders in the form of
corporations own share capital.
This type of dividend does not affect
total assets and total shareholders
equity rather it simply represents a
transfer of capital from retained
earnings to contributed capital.
 DIVIDENDS ON
PREFERENCE SHARES
 Dividends on Preference
Shares
When dividends are paid, the dividend
requirements on preference shares must
be paid before any payment can be
made to ordinary shares.
The preference shares may be:
1. Cumulative
2. Noncumulative
3. Participating
4. Nonparticipating
 Illustrative Problem
The Fortune Corp. declared and paid cash dividends
for the last three years as follows:
2010 P120,000; 2011 P200,000; 2012 P300,000.
No dividends were paid for two years prior to 2006.
the capital structure of the company for the last
three years follows:
10% Preference share capital, P100 par, 5,000 shares
outstanding P500,000
Ordinary share capital, P50 par, 5,000 shares
outstanding
The annual dividend requirement on preference
shares is P50,000 or P10 per share. At the beginning
of 2010, dividends are in arrears. For two years.
 Case 1 The preference shares are
noncumulative and nonparticipating
Case 2 The preference shares are
cumulative but not participating
 Case 3 The preference shares are
noncumulative but fully participating
Case 4 The preference shares are
cumulative and fully participating
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