Page 523 - Accounting Principles (A Business Perspective)

13. Corporations: Paid-in capital, retained earnings, dividends, and treasury stock

*This label is not the exact account title but is representative of the descriptions used on balance sheets. The
exact account title could be used, but shorter descriptions are often shown.
In their highly condensed, published balance sheets, companies often omit the details regarding the sources of

the paid-in capital in excess of par or stated value and replace them by a single item, such as:
Paid-in capital in excess of par (or stated) value USD 50,000
Dividends are distributions of earnings by a corporation to its stockholders. Usually the corporation pays
dividends in cash, but it may distribute additional shares of the corporation's own capital stock as dividends.
Occasionally, a company pays dividends in merchandise or other assets. Since dividends are the means whereby the
owners of a corporation share in its earnings, accountants charge them against retained earnings.
Before dividends can be paid, the board of directors must declare them so they can be recorded in the

corporation's minutes book. Three dividend dates are significant:
• Date of declaration. The date of declaration indicates when the board of directors approved a motion
declaring that dividends should be paid. The board action creates the liability for dividends payable (or stock
dividends distributable for stock dividends).
• Date of record. The board of directors establishes the date of record; it determines which stockholders
receive dividends. The corporation's records (the stockholders' ledger) determine its stockholders as of the
date of record.
• Date of payment. The date of payment indicates when the corporation will pay dividends to the

stockholders.
To illustrate how these three dates relate to an actual situation, assume the board of directors of the Allen
Corporation declared a cash dividend on 2010 May 5, (date of declaration). The cash dividend declared is USD 1.25
per share to stockholders of record on 2010 July 1, (date of record), payable on 2010 July 10, (date of payment).
Because financial transactions occur on both the date of declaration (a liability is incurred) and on the date of
payment (cash is paid), journal entries record the transactions on both of these dates. No journal entry is required
on the date of record.

Exhibit 98 shows the frequencies of dividend payments made by a sample of representative companies for the
years 1996-99. Note that cash dividends are far more numerous than stock dividends or dividends in kind (paid in
merchandise or other assets).

An accounting perspective:

Uses of technology

After original issuance, investors may trade the stock of a company on secondary markets, such as
the New York Stock Exchange. The company makes no entry on its books for these outside trades
after issuance. Often, a company uses a spreadsheet or database program to note trades between
shareholders. These computer programs can print a report on the date of record. This information
allows a company that declares a dividend to be certain the money or stock goes to the stockholders

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