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Questions and Answers
What occurs on the date of declaration in relation to cash dividends?
What occurs on the date of declaration in relation to cash dividends?
- Shareholders receive their dividends.
- The board declares the dividend. (correct)
- Dividends payable is reduced.
- The dividend is paid out to shareholders.
What is the outcome for shareholders on the date of record?
What is the outcome for shareholders on the date of record?
- They need to hold shares to qualify for dividends. (correct)
- They receive dividends immediately.
- They must sell their shares to receive dividends.
- They lose their right to dividends.
Which accounting entries are made on the date of declaration?
Which accounting entries are made on the date of declaration?
- Retained earnings are debited and dividends payable is debited. (correct)
- Retained earnings are debited and dividends payable is credited.
- Dividends paid are recorded as an expense.
- Cash is credited and dividends payable is debited.
What must take place on the date of payment for dividends?
What must take place on the date of payment for dividends?
What indicates the recording of a liability on the date of declaration of a dividend?
What indicates the recording of a liability on the date of declaration of a dividend?
What is the total amount of dividends payable for 250,000 shares at a rate of $0.08 per share?
What is the total amount of dividends payable for 250,000 shares at a rate of $0.08 per share?
What is the effect of a cash dividend on total shareholders' equity?
What is the effect of a cash dividend on total shareholders' equity?
What does a distribution of additional shares to shareholders signify?
What does a distribution of additional shares to shareholders signify?
What journal entry would be made when crediting preferred stock for a dividend payment of $20,000?
What journal entry would be made when crediting preferred stock for a dividend payment of $20,000?
Which of the following statements about dividends is correct?
Which of the following statements about dividends is correct?
What amount of cash dividends was declared by the board of directors?
What amount of cash dividends was declared by the board of directors?
How much is the cash dividend per share?
How much is the cash dividend per share?
Which accounts will be affected on July 15 when the dividend is paid?
Which accounts will be affected on July 15 when the dividend is paid?
What is the total number of shares for which the dividend was declared?
What is the total number of shares for which the dividend was declared?
What is the correct journal entry on June 1 upon declaration of dividends?
What is the correct journal entry on June 1 upon declaration of dividends?
What happens to retained earnings when dividends are declared?
What happens to retained earnings when dividends are declared?
Which financial statement reflects the dividends declared by the company?
Which financial statement reflects the dividends declared by the company?
When will the dividend payment actually take place?
When will the dividend payment actually take place?
What is the primary effect of issuing share dividends on a company's financial statements?
What is the primary effect of issuing share dividends on a company's financial statements?
Which of the following accurately describes share dividends?
Which of the following accurately describes share dividends?
What is one reason companies issue share dividends?
What is one reason companies issue share dividends?
What happens during the date of declaration for share dividends?
What happens during the date of declaration for share dividends?
Which of the following is NOT a reason to issue share dividends?
Which of the following is NOT a reason to issue share dividends?
How do share dividends affect the marketability of shares?
How do share dividends affect the marketability of shares?
What is recorded in the company's financial books at the time of share dividend payment?
What is recorded in the company's financial books at the time of share dividend payment?
What effect do share dividends have on a company's retained earnings account?
What effect do share dividends have on a company's retained earnings account?
What is the journal entry to record the cash received from the rights shares issued at $2.50 each for 44,000 shares?
What is the journal entry to record the cash received from the rights shares issued at $2.50 each for 44,000 shares?
How many ordinary shares would be reflected in the shareholders' equity after the rights share issuance?
How many ordinary shares would be reflected in the shareholders' equity after the rights share issuance?
What typically characterizes the issue price of rights shares compared to the market price?
What typically characterizes the issue price of rights shares compared to the market price?
Which of the following is NOT a characteristic of a rights share issue?
Which of the following is NOT a characteristic of a rights share issue?
What is one critical distinction between a rights issue and a bonus issue?
What is one critical distinction between a rights issue and a bonus issue?
In preparing journal entries for rights shares, what is the correct accounting treatment for cash received?
In preparing journal entries for rights shares, what is the correct accounting treatment for cash received?
Which statement best summarizes the purpose of a rights issue?
Which statement best summarizes the purpose of a rights issue?
What is the effect of recording rights shares on the balance sheet under shareholders' equity?
What is the effect of recording rights shares on the balance sheet under shareholders' equity?
Study Notes
Cash Dividends
- When a company declares a cash dividend, the following entries occur:
- A debit to Retained Earnings, decreasing owners’ equity
- A credit to Dividends Payable, increasing liabilities
Cash Dividend Dates
- Declaration Date: The date the Board of Directors approves the dividend payment.
- Record Date: The date shareholders of record are determined. Shareholders owning shares on this date are eligible to receive the dividend.
- Payment Date: The date the company actually distributes the cash dividend to shareholders. This results in a debit to Dividends Payable and a credit to Cash.
Share Dividends
- A distribution of additional shares of the company's stock to shareholders.
- Does not affect total shareholders’ equity.
- Shareholders retain their percentage of ownership of the company.
- Share dividends do not transfer the company's assets to the shareholders.
- Distributed free to the shareholders at fair value.
Reasons for Share Dividends
- Conserving cash: Allows companies to continue paying dividends without cash payment.
- Reducing market price: Decreases the market price per share and increases marketability.
- Adjusting capital structure: Corrects the company's capital structure, where retained earnings have grown too large.
- Preventing takeovers: Makes it more difficult for an outside company to acquire enough shares to gain control.
Share Dividend Dates
- Declaration Date: The Board of Directors declares and approves the share dividend.
- Record Date: Shareholders of record on this date are eligible to receive the share dividend.
- Payment Date: The company records the issue of the share dividend to shareholders.
Rights Issue
- A company issues shares to existing shareholders at a discounted price.
- Gives shareholders the right to purchase new shares.
- This can be used to raise capital.
- The issue price is typically lower than the market price of the shares.
Journal Entries for Rights Shares
- When rights shares are issued, a journal entry needs to be recorded:
- A debit to Cash
- A credit to Share Capital
Shareholders’ Equity after Rights Shares
- The Shareholders’ equity account will reflect the issuance of the new shares, increasing both the issued and paid-up capital.
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Description
This quiz covers the accounting principles related to cash and share dividends, including their declaration, record, and payment dates. Understand the impact of these dividends on owners' equity and liabilities, as well as the implications of share dividends on shareholders' ownership. Test your knowledge on these important financial concepts.
