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14-1
Chapter 14
Corporations:
Dividends, Retained
Earnings, and Income
Reporting
Chapter
14-2 Accounting Principles, Ninth Edition
Study Objectives
Chapter
14-3
Corporations: Dividends, Retained Earnings,
and Income Reporting
Statement
Retained
Dividends Presentation and
Earnings
Analysis
Chapter
14-4
Dividends
Types of Dividends:
1. Cash dividends. 3. Stock dividends.
2. Property dividends.
Chapter
14-5 SO 1 Prepare the entries for cash dividends and stock dividends.
Dividends
Chapter
14-6 SO 1 Prepare the entries for cash dividends and stock dividends.
Dividends
Cash Dividends
For a corporation to pay a cash dividend, it must have:
1. Retained earnings - Payment of cash dividends
from retained earnings is legal in all states.
2. Adequate cash.
3. A declaration of dividends by the Board of
Directors.
Chapter
14-7 SO 1 Prepare the entries for cash dividends and stock dividends.
Dividends
Illustration: What would be the journal entries made by
a corporation that declared a $50,000 cash dividend on
March 10, payable on April 6 to shareholders of record on
March 25?
March 10 (Declaration Date)
Retained earnings 50,000
Dividends payable 50,000
Chapter
14-9 SO 1 Prepare the entries for cash dividends and stock dividends.
Dividends
Chapter
14-10 SO 1 Prepare the entries for cash dividends and stock dividends.
Dividends
Chapter
14-11 SO 1 Prepare the entries for cash dividends and stock dividends.
Dividends
Journal entry:
Retained earnings 28,000
Dividends payable 28,000
Chapter
14-13 SO 1 Prepare the entries for cash dividends and stock dividends.
Chapter
14-14
Dividends
Stock Dividends
Reasons why corporations issue stock dividends:
1. To satisfy stockholders’ dividend expectations
without spending cash.
2. To increase the marketability of the corporation’s
stock.
3. To emphasize that a portion of stockholders’ equity
has been permanently reinvested in the business.
Chapter
14-16 SO 1 Prepare the entries for cash dividends and stock dividends.
Dividends
Stock issued
Common stock div. distributable 500
Common stock (5,000 x 10% x $1) 500
Chapter
14-18 SO 1 Prepare the entries for cash dividends and stock dividends.
Dividends
HH Inc.
Balance Sheet (partial)
Stockholders' equity
Paid-in capital
Common stock, $1 par, 5,000 issued
and outstanding $ 5,000
Common stock dividends distributable 500
Paid-in capital in excess of par 64,500
Retained earnings 90,000
Total stockholders' equity $ 160,000
Chapter
14-19 SO 1 Prepare the entries for cash dividends and stock dividends.
Dividends
Chapter
14-20 SO 1 Prepare the entries for cash dividends and stock dividends.
Dividends
Question
Which of the following statements about small stock
dividends is true?
a. A debit to Retained Earnings for the par value of
the shares issued should be made.
b. A small stock dividend decreases total
stockholders’ equity.
c. Market value per share should be assigned to the
dividend shares.
d. A small stock dividend ordinarily will have no
effect on book value per share of stock.
Chapter
14-21 SO 1 Prepare the entries for cash dividends and stock dividends.
Dividends
Question
In the stockholders’ equity section, Common Stock
Dividends Distributable is reported as a(n):
a. deduction from total paid-in capital and
retained earnings.
b. current liability.
c. deduction from retained earnings.
d. addition to capital stock.
Chapter
14-22 SO 1 Prepare the entries for cash dividends and stock dividends.
Dividends
Stock Split
Reduces the market value of shares.
No entry recorded for a stock split.
Decrease par value and increase number of
shares.
Chapter
14-23 SO 1 Prepare the entries for cash dividends and stock dividends.
Dividends
Chapter
14-24 SO 1 Prepare the entries for cash dividends and stock dividends.
Chapter
14-25
Dividends
Chapter
14-26 SO 1 Prepare the entries for cash dividends and stock dividends.
Retained Earnings
Chapter
14-27 SO 2 Identify the items reported in a retained earnings statement.
Retained Earnings Restrictions
Chapter
14-28 SO 2 Identify the items reported in a retained earnings statement.
Prior Period Adjustments
Corrections of Errors
Result from:
mathematical mistakes
mistakes in application of accounting principles
oversight or misuse of facts
Chapter
14-29 SO 2 Identify the items reported in a retained earnings statement.
Prior Period Adjustments
Woods, Inc.
Statement of Retained Earnings
For the Year Ended December 31, 2010
Before issuing the report for the year ended December 31, 2010, you discover a
$50,000 error (net of tax) that caused the 2009 inventory to be overstated
(overstated inventory caused COGS to be lower and thus net income to be
higher in 2009. Would this discovery have any impact on the reporting of the
Statement of Retained Earnings for 2010?
Chapter
14-30 SO 2 Identify the items reported in a retained earnings statement.
Retained Earnings Statement
Woods, Inc.
Statement of Retained Earnings
For the Year Ended December 31, 2010
Chapter
14-31 SO 2 Identify the items reported in a retained earnings statement.
Retained Earnings Statement
Chapter
14-32 SO 2 Identify the items reported in a retained earnings statement.
Retained Earnings Statement
Question
All but one of the following is reported in a retained
earnings statement. The exception is:
a. cash and stock dividends.
b. net income and net loss.
c. some disposals of treasury stock below cost.
d. sales of treasury stock above cost.
Chapter
14-33 SO 2 Identify the items reported in a retained earnings statement.
Statement Analysis and Presentation
Illustration 14-15
Chapter
14-34 SO 3 Prepare and analyze a comprehensive stockholders’ equity section.
Statement Analysis and Presentation
Chapter
14-35 SO 3 Prepare and analyze a comprehensive stockholders’ equity section.
Statement Analysis and Presentation
Statement
Presentation
Chapter
14-36 SO 4 Describe the form and content of corporation income statements.
Statement Analysis and Presentation
Chapter
14-37 SO 5 Compute Earnings Per Share.
Statement Analysis and Presentation
Question
The income statement for Nadeen, Inc. shows income
before income taxes $700,000, income tax expense
$210,000, and net income $490,000. If Nadeen has
100,000 shares of common stock outstanding
throughout the year, earnings per share is:
a. $7.00.
b. $4.90. ($490,000 / 100,000 = $4.90)
c. $2.10.
d. No correct answer is given.
Chapter
14-38 SO 5 Compute Earnings Per Share.
Copyright
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Chapter
14-39