Page 524 - Accounting Principles (A Business Perspective)

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who own the stock on the date of record rather than to the stockholders who originally purchased
the stock.

Cash dividends are cash distributions of accumulated earnings by a corporation to its stockholders. To
illustrate the entries for cash dividends, consider the following example. On 2010 January 21, a corporation's board
of directors declared a 2 per cent quarterly cash dividend on USD 100,000 of outstanding preferred stock. This
dividend is one-fourth of the annual dividend on 1,000 shares of USD 100 par value, 8 per cent preferred stock. The
dividend will be paid on 2010 March 1, to stockholders of record on 2010 February 5. An entry is not needed on the
date of record; however, the entries at the declaration and payment dates are as follows:
2010
Jan. 21 Retained earnings (-SE) 2,000
Dividends payable (+L) 2,000
Dividends declared: 2% on $100,000 of outstanding preferred stock,
payable 2010 March 1, to stockholders of record on 2010 February 5.

Mar. 1 Dividends payable (-L) 2,000
Cash (-A) 2,000
Paid the dividend declared on 2010 January 21.
Often a cash dividend is stated as so many dollars per share. For instance, the quarterly dividend could have
been stated as USD 2 per share. When they declare a cash dividend, some companies debit a Dividends account
instead of Retained Earnings. (Both methods are acceptable.) The Dividends account is then closed to Retained
Earnings at the end of the fiscal year.
Number of Companies
2006 2005 2004 2003
Cash dividends paid to common stock
shareholders
Per share amount disclosed in retained earnings 213 219 229 239
statements
Per share amount not disclosed in retained earning 157 135 156 164
statements
Total: 370 354 385 403
Cash dividends paid to preferred stock shareholders
Per share amount disclosed in retained earnings 22 22 17 25
statements
Per share amount not disclosed in retained earnings 32 38 48 44
statements
Total: 54 60 65 69
**Dividends paid by pooled companies X X X X
Stock dividends 4 6 4 12
Dividends in kinds 7 10 14 7
Stock purchase rights 1 4 7 9
Exhibit 98: Types of dividends
Once a cash dividend is declared and notice of the dividend is given to stockholders, a company generally cannot
41
rescind it unless all stockholders agree to such action. Thus, the credit balance in the Dividends Payable account
appears as a current liability on the balance sheet.

41 Stockholders might agree to rescind (cancel) a dividend already declared if the company is in difficult financial

circumstances and needs to retain cash to pay bills or acquire assets to continue operations.

Accounting Principles: A Business Perspective 525 A Global Text