Sheet (3) : Corporations: Dividends, Retained Earnings, and Income Reporting

Sheet (3)
Corporations :
Chapter
Dividends, Retained
Earnings, and
Income reporting
15
Groub: faculty of commerce english
section second year 2018/2019
Edited by Dr/ Magdy Kamel

Tel/ 01273949660
1 | Page Dr/ Magdy Kamel

Dividends ‫االرباح على االسهم‬
Dividends is a distribution by a corporation to its stockholders’ on a pro rata (pro
potential) basis ‫بالتناسب‬
Dividends can be taken in four forms :
Cash , property , scrip ‫( ايصال‬a promissory note to pay cash) , cash dividends
1) Cash dividends (requirement for cash distribution )
 Retained earnings :
The legality of a cash dividends depends on the laws of the state , payment of cash
dividends from retained earnings is legally required in the U.S .A.
In general cash distribution based only on common stock are illegal.
 Adequate Cash :
The legality of dividends and ability to pay a dividends are two different things .
Before declaring a cash dividends, a company ‘s board of directors must carefully
consider both current and future demands on the company’s cash resources.
 A declaration of dividends :
a company doesn’t pay dividends unless its board of directors decides to do so, at which
point the board of directors “ declares” the dividends .
The board of directors has authority to determine the amount of income to be
distributed in the form of dividend and the amount to be retained in the business .
Entries for cash dividends :
Three dates are important in connection with the dividends,

(1) the declaration date, (2) the record date , (3) the payment date , normally ,
there are two to four weeks between each date .
Accounting entries are required on two of the dates (1) the declaration date, (3) payment
date ).
(1) on the declaration date .

The board of directors formally declares (authorizes ) the cash dividends and
announce it to stockholders.
A declaration of cash dividends commits the corporation to a legal obligation.
An entry is required to recognize the decrease in retained earnings (decrease
stockholders’ equity ) and increase in the liability (dividends payable ).

1) Declaration date
Retained earnings XX
Dividends payable XX
2) At The Record Date:

Ownership of the outstanding shares is determined for dividends purpose.
The records maintained by the corporation supply this information.
In the interval between the declaration date and the record date, the corporation
update its stock ownership records
(the purpose of the record date is to identify the person that will receive the
dividend, not to determine the amount of the dividends liability).
No entry is required on this date because the corporation’s liability recognized on
the declaration date is unchanged.
2) The Record Date

No entry necessary
3) on The Payment Date

Dividend checks is mailed to stockholders and the payment of the dividend is recorded.
Note that
The payment of dividend reduce both the current liabilities and current assets , it has no
effect on stockholders’ equity
The cumulative effect of the declaration and payment of a cash dividend is to reduce
both stockholders’ equity and total assets.
3) payment date
Dividends payable XX
Cash XX
 Stock dividends
A stock dividends is a pro rata distribution to stockholders of the corporation’s own stock.
Whereas a cash dividends is paid in cash, a stock dividend is paid in stock.
A stock dividend result in a decrease in retained earnings and an increase in paid in capital.
You own more shares of stock, but your ownership interest has not changed.
Unlike a cash dividends , stock dividends does not decrease total stockholders’ equity or
total assets.

Notes that
Small stock dividends ( less than 25% )  retained earnings reduced by fair market value
per share.
A large stock dividends ( more than 25% )  retained earnings reduced by par or stated
value per share .
1) Declaration date :
Common stock dividend distributable XX
Paid in capital in excess of par value XX
2) issuance date
Common stock dividend distributable XX
Common stock XX
Effect of stock dividneds :
They change the composition of stockholders’ equity , because a portion of retained

earnings is transferred to paid in capital . however, total stockholders’ equity remains the
same , also it has no effect on the par or stated value per share.
Before After
Stock Dividend Stock Dividend
Shareholders’ equity
Common shares $500,000 $ 575,000
Retained earnings 300,000 225,000
Total shareholders’ equity $800,000 $ 800,000
Issued shares 50,000 55,000
Book value per share $ 16.00 $ 14.55

Stock split
A stock split like stock dividend, involves the issuance of addition shares to stockholders
according to their percentage ownership.
A stock split result in reduction in the par value or stated value per share .
The purpose of stock split is to increase the marketability of the stock by lowering its
market value per share.
The stock split doesn’t have any effect on total paid in capital , retained earning , or total
stockholders’ equity.
But the number of shares outstanding increases and the book value per share decreases.
So it is not necessary to journalize a split stock.
Prior period adjustment :

 A prior period adjustment is the correction of an error in the previously issued financial
statement.
 The correction is made directly to retained earnings balance resulting in the adjusted
beginning balance :
 The net income for the period has been recorded in the retained earnings through the
journalizing and posting of closing entries.
 They are added or deducted from the beginning balance results in an adjusted
beginnings balance.
Accumulated depreciation XX
(to adjust for understatement of
depreciation in the prior period).
Retained earnings statement

The retained earnings statement shows the changes in retained earnings during the year
The statement is prepared from the retained earnings account.
Net income increase retained earnings , and a net loss decreases retained earnings,
prior period adjustments may either increase or decrease retained earnings ,
both cash dividends and stock dividends decrease retained earnings

retained earnings
1. net loss 1. Net income

2. prior period adjustment for 2. prior period adjustment for
Overstatement of net income understatement of net income
3. cash dividends and stock dividends 3. beginning retained earnings

4) some disposals of treasury stock
Return on common =
Stockholders’ equity
Earnings per share (EPS) =
Income statement
Sales XX
( - ) cost of goods sold (XX)
Gross profit XXX
(-) operating expense (XX)
Income from operation XXX
Other revenues XX
( - ) Other expense (XX)
Income before income tax XXX
( - ) Income tax expense (XX)
Net income XXX
Journalizing tax expense

Income tax expense XX
Income tax payable XX
Exercise (15 – 1)

a)
June. 15 Retained earnings (110,000 × $1) 110,000
Dividends Payable 110,000
July. 10 Dividends Payable 110,000
Cash 110,000
Dec. 15 Retained earnings (112,000 × $1.20) 134,400
b)
 in the retained earnings statement, dividends of $244,400 will be deducted.
in the balance sheet,
 dividends payable of $134,400 will be reported as a current liability.
Exercise (15 – 2)
a) Preferred Stock Dividends = 8% × 2,000 shares × 50 par = 8,000 per year.
 non cumulative
2004 2005 2006
Total dividends declaration $6,000 $12,000 $28,000
Allocation to Preferred Stock 6,000 8,000 8,000
Remainder to Common Stock $ -0- $ 4,000 $20,000
b) Preferred Stock Dividends = 9% × 2,000 shares × 50 par = 9,000 per year.

 cumulative
2004 2005 2006
Total dividends declaration $6,000 $12,000 $28,000
Allocation to preferred stock 6,000 12,000* 9,000
Remainder to common stock $ -0- $ -0- $19,000
*Cumulative dividend for year 1 + current dividend for year 2 = 3,000 + 9,000= 12,000*
c)
Dec. 31 Retained earnings 28,000
Dividends payable 28,000
Exercise (15 – 3)
a) Stock dividend = 15% × [ + 60,000 ] = 24,000 *
a) Retained earnings (24,000* × $18) 432,000
Common Stock Dividends Distributable 240,000
(24,000* × $10)
Paid in capital in excess of par value 192,000
(24,000* × $8)
b) Stock dividend = 15% × [ + 60,000 share ] = 39,000*

Retained earnings (39,000* × $20) 780,000
b) Common Stock Dividends Distributable 195,000
(39,000* × $5)
(39,000* × $15)
Exercise (15 – 4)
Stock Dividends = 5% × 60,000 = 3,000*
Retained Earnings ( 3,000* × $14) 42,000
Common Stock Dividend Distributable 30,000
(3,000* × $10)
Common Stock 30,000
Before After After

Action Stock Stock
Dividend Split
Paid in capital
Common Stock, $10 par $ 600,000 $ 630,000 $ 600,000
In excess of par value . 0 12,000
. 0 .
Total paid in capital 600,000 642,000 600,000

(+) Retained earnings 900,000 858,000 900,000
Total stockholders’ equity $ 1,500,000 $ 1,500,000 $ 1,500,000
 Outstanding shares 60,000 63,000 120,000
 Book value per shares $25 $23.81 $12.5
Exercise (15 – 5)
a) (1) Book Value before the Stock Dividend = = $ 7.5
(2) Book Value after the Stock Dividend = = $ 6.82

b) Stock Dividends = 10% × 40,000 issued = 4,000*
Common stock dividend distributable 20,000
(4,000* × $5)
($60,000 – $20,000)
Common stock 20,000
The balance of stockholders’ equity after stock dividend :-

 Common stock (200,000 + 20,000 ) = $220,000
 Paid in capital in excess of par value (25,000 + 40,000) = $65,000
 Retained earning (75,000 – 60,000) = $15,000
Exercise (15 – 6 )
Paid in capital
Items capital stock additional retained earnings
1. NE NE D
2. I NE NE
3. NE NE NE
4. I I D
5. NE NE D
6. NE NE NE
7. NE NE NE
8. I I NE
Exercise (15 -7 )
Incorrect correct
1) Retained earnings 50,000
Interest expense 50,000 Cash 50,000
Cash 50,000
Retained earnings 10,000 (1,000 × 16)
Dividend payable 10,000 Common stock dividend 10,000
Distributable(1,000×10)
Paid in capital in excess 6,000
of par value
3)
Retained earnings 2,000,000 No entry
Common stock 2,000,000
Correcting
Interest expense 50,000
3) Common stock 2,000,000
Retained earnings 2,000,000
Exercise (15 – 8) CASTLE CORPORATION

Retained Earnings Statement
For The Year Ended December 31, 2005
Balance, January 1, as reported ………………………. $ 550,000
Correction for overstatement of 2007 net income
(depreciation error) ………………………………… (30,000)
Balance, January 1, as adjusted ………………………… 520,000
Add: Net income ………………………………………………. 350,000
870,000
Less: Cash dividends ……………………….. $120,000
Stock dividends ………………………… 80,000 (200,000)
Balance, December 31 ……………………………………….. $ 670,000
Exercise (15 – 9)
TIGER INC.
Balance Sheet ( Partial)
December 31, 200X
Stockholders’ Equity
Paid In Capital
Capital Stock

 8% Preferred Stock , $5 par value,
40,000 shares authorized, 30,000 shares issued …………… $150,000
 Common Stock, no par, $1 stated value,
400,000 shares authorized , 300,000 shares issued
and 290,000 outstanding …………………………… $300,000
 Common stock dividends distributable …………… 60,000 360,000
Total capital stock ………………………………………………………………….. 510,000
Additional paid in capital
In excess of par value – preferred stock …………… 344,000
In excess of stated value – common stock ………… 1,200,000
Total additional paid in capital ……………………………………………… 1,544,000
Total paid in capital ……………………………………………………………… 2,054,000
(+) Retained earnings (see note R) ………………………………………… 700,000
Total paid in capital and retained earnings ……………………………. 2,754,000
Less : treasury stock (10,000 common shares) …………………….. (74,000)
Total stockholders’ equity …………………………………………….. $2,680,000
Note R: retained earnings is restricted for plant expansion, $100,000
Exercise (15 – 10)

a) SOSA CORPORATION
Income Statement
Sales ……………………………………………………… $800,000
(–) Cost of goods sold ……………………………….. (265,000)
Gross Profit …………………………………….. 535,000

(–) Operating expenses ……………………………… (110,000)
income from operations …………………… 425,000
(+) Other Revenues and gains $ 92,000
(–) Other expenses and Losses (28,000) 64,000
income before income taxes ……………… 489,000
(–) income tax expense (489,000 × 20%) ……… (97,800)
Net Income ………………………………………… $391,200
b) Earning per shares = = $7.22

2005 2004
Earnings per share = $ 2.10 = $1.69
Return on common × 100 = 17.5% × 100 = 15%


2005 2004
Earnings per share = $ 1.6 = $ .95
Return on common × 100 = 13.3% × 100 = 9%

Stock holders’ equity

Preferred dividends = 8% × 2,000 shares × $100 par = 16,000*
a) earnings per share = = $ 4.05
b) earnings per share = = $ 4.50
weighted average of common stock outstanding = share issued – no.of treasury stock
= 100,000 – 10,000 = 90,000
Problem (15 – 1A)

a)
Jan. 15 Retained earnings ( 90,000 × $1) 90,000
Feb. 15 Dividends Payable 90,000
Cash 90,000
Apr. 15 Stock dividends = 10% × 90,000 = 9,000*

(9,000* × $10)
(9,000* × $5)
May. 15 Common Stock Dividends Distributable 90,000
Common Stock (9,000 × $10) 90,000
July. 1 Memo – two for one stock split increases the

number of shares outstanding to 198,000 , or
(99,000 × 2) and reduces par value to 5 per
share
Dec. 1 Retained Earnings ($.50 × 198,000) 99,000

Dec. 31 Income Summary 250,000

Retained Earnings 250,000
b) Common Stock
Date Explanation Ref. Debit Credit Balance
Jan. 1 Balance √ 900,000
May. 15 90,000 990,000
July. 1 2 for 1 stock split – new
par value = $5
Paid in capital in excess of par value

Apr. 15 45,000 245,000

Retained Earnings
Jan. 15 Cash dividends 90,000 450,000
Apr. 15 Stock dividends 135,000 315,000
Dec. 1 Cash dividends 99,000 216,000
Dec. 31 Net income 250,000 466,000
Common stock dividends distributable

Apr. 15 90,000 90,000
May. 15 90,000 -0-
(c) SNIDER CORPORATION

Balance Sheet ( Partial )
December 31, 2005
Stockholders’equity
Paid In Capital
 Capital Stock
Common stock , $5 par value , 198,000
shares issued and outstanding $ 990,000
 additional paid in capital
in excess of par value 245,000
total paid in capital 1,235,000
(+) retained earnings 466,000
total stockholders’ equity $1,701,000
Problem (15 – 2A)
a)
July. 1 Retained Earnings $0.50 × (900,000 ÷ $10) 45,000
Dividends Payable – Common Stock 45,000
Aug. 1 Accumulated Depreciation 72,000
Sept. 1 Dividends Payable – Common Stock 45,000
Cash 45,000

Stock dividends = 10% × 90,000 = $9,000*
Dec. 1 Retained Earnings (9,000* × $16) 144,000

(9,000* × $10)
– common stock (9,000* × $6)
Dec. 15 Retained Earnings ($7 × 5,000) 35,000
Dividends Payable – Preferred Stock 35,000
Dec. 31 Income Summary 380,000

(b)
Preferred Stock
Jan. 1 balance √ 500,000
Common Stock
Paid in capital in excess of par value – Preferred Value

Paid in capital in excess of par value – Common Value

Dec. 1 54,000 254,000
Retained Earnings
July. 1 Cash dividends – common 45,000 455,000
Aug. 1 Prior period adjustment 72,000 527,000
Dec. 1 Stock dividends – common 144,000 383,000
Dec. 15 Cash dividends – preferred 35,000 348,000
Dec. 31 Net income 380,000 728,000
Common Stock Dividends Distributable

Dec. 1 90,000 90,000
(c) TRACEY INC.

Balance, January 1, as reported ………………………… $500,000
Correction of 2004 depreciation ………………………… 72,000
Balance, January 1, as adjusted ………………………… 572,000
Add: net income ………………………………………………… 380,000
952,000
Less : Cash dividends – preferred $ 35,000
Stock dividends – common 144,000
Cash dividends – common 45,000 224,000
Balance, December 31 ……………………………………… $728,000
(d) TRACEY INC.

Balance Sheet (Partial )
December 31, 2005
Paid in capital
Capital Stock
o 7% Preferred Stock, $100 par value,
5,000 shares issued $500,000
o Common Stock, $5 par value,
180,000 shares issued $900,000
o Common stock dividends distributable 90,000 990,000
Total capital stock 1,490,000
In excess of par value – Preferred Stock 100,000
In excess of par value – Common Stock 254,000
Total additional paid in capital 354,000
Total paid in capital 1,844,000
(+) Retained earnings 728,000
Total stockholders’ equity $2,572,000
Problem ( 15 – 3A)
Retained earnings
Nov. 1 cash dividends 600,000 Jan. 1 balance 2,450,000
Dec. 31 stock dividends 280,000 Dec. 31 795,000
Dec. 31 balance 2,365,000
(b) NAKONA CORPORATION

Balance, January 1 …………………………….. $2,450,000
Add: net income ……………………………… 795,000
3,245,000
Less : cash dividends …………. 600,000
Stock dividends …………. 280,000 (880,000)
Balance, December 31 ………………………… $2,365,000
(c) NAKONA CORPORATION
December 31, 2005
Paid in capital
Capital stock
8% Preferred Stock, $100 par value,
Noncumulative, callable at $125, 20,000 Shares
authorized, 10,000 shares issued and outstanding $1,000,000
Common Stock, no par, $5 stated value,
600,000 shares authorized ,
400,000 shares issued and outstanding $2,000,000
Common stock dividends distributable 200,000 2,200,000
In excess of par value – Preferred Stock $ 200,000
In excess of stated value – Common Stock 1,100,000
Total additional paid in capital 1,300,000
(+) Retained earnings ( see note A) 2,365,000
Note A : retained earnings is restricted for plant expansion , $100,000
d) preferred dividend = %8 × $1,000,000 = $80,000*

earnings per share = = $2.20
e) Total Dividends $600,000

Allocation to preferred stock – current year only (80,000)
remainder to common stock $520,000
Problem ( 15 – 4A)
a) entries from jan 1 till march 31 :
Feb. 1 Retained earnings (120,000 × $1) 120,000
Mar. 1 Dividends Payable 120,000
Cash 120,000
Casey Corporation
Partial Balance Sheet
Marth 31, 2005

Paid In Capital
Common Stock, no par value , 120,000 shares issued
and outstanding $2,800,000
b)
entries from march 31 till june 30 :
Apr. 1 No entry
( shares issued = 120,000 × 4 = 480,000, and
stated value = 2,800,000 ÷ 120,000 = 23.33 ÷ 4 = 5.8333 )
Casey Corporation
June 1, 2005
Paid In Capital
Common stock, no par value, $5,8333 stated value,
c)
entries from june 30 till sept 30:
Stock Dividends = 5% × 480,000 = 24,000*
July. 1 Retained earnings (24,000* × $13) 312,000
Common stock dividends distributable 140,000
(24,000* × $5.8333)
Paid in capital in excess of stated value 172,000
July. 31 Common stock dividends distributable 140,000

Common stock 140,000
Casey Corporation

Sept 30, 2005
Paid in capital
504,000 shares issued and outstanding $2,940,000 *
(+) Retained earnings (880,000 – 312,000) 568,000
* 2,800,000 + 140,000 = 2,940,000
d) entries from sept 30 till dec 31:

Dec. 1 Retained earnings ( $.5 × 504,000) 252,000
Dec. 31 Income summary 700,000
Retained earnings 700,000
Casey corporation
Partial balance sheet
Dec 31, 2005
Paid in capital
(+) Retained earnings (568,000 – 252,000 + 700,000) 1,016,000

Problem (15 – 5A)
1 Common Stock Dividends Distributable 400,000
Common Stock 400,000
2 Cash (60,000 × $5) 300,000
Common Stock (60,000 × $3) 180,000
3 Accumulated Depreciation 140,000
4 Retained Earnings 200,000
Cash 200,000
5 Income summary 600,000
Andujar Corporation
Dec 31, 2005
Paid In Capital
Common Stock, no par value,
1,116,000 shares issued and outstanding $3,580,000 *
(+) Retained earnings 1,740,000 ***
* Balance of common stock = 3,000,000 + 400,000 + 180,000 = 3,580,000
*** Balance of retained earnings = 1,200,000 +140,000 – 200,000 + 600,000 = 1,740,000
Problem (15 – 1B)
a)
Feb. 1 Retained earnings (75,000 × $1) 75,000
Mar. 1 Dividends payable 75,000
Cash 75,000
Apr. 1 Memo – two for one stock split increases the
number of shares outstanding to 150,000 , or
(75,000 × 2) and reduces par value to $10 per
share

July. 1 Stock dividends = 10% × 150,000 = 15,000*
(15,000* × $10)
(15,000* × $3)
July. 31 Common stock dividends distributable 150,000

Common stock 150,000
Dec. 1 Retained earnings (165,000 × $.50) 82,500
b) common stock
Jan. 1 Balance √ 1,500,000
Apr. 1 2 for 1 stock split – new
par value = 10
July. 31 150,000 1,650,000
Paid in capital in excess of par value

July. 1 45,000 245,000
Common stock dividends distributable

July. 1 150,000 150,000
July. 31 150,000 -0-
Retained earnings
Jan. 1 Balance 600,000
Feb. 1 Cash Dividend 75,000 525,000
July. 1 Stock Dividend 195,000 330,000
Dec. 1 Cash Dividend 82,500 247,500
Dec. 31 Net Income 350,000 597,500
(c) Argentina Corporation

December 31, 2005

Stockholders’equity
Paid In Capital
Capital Stock
Common Stock , $10 par value , 165,000
shares issued and outstanding $1,650,000
additional paid in capital
in excess of par value 245,000
total paid in capital 1,895,000
(+) retained earnings 597,500
total stockholders’ equity $2,492,500
Problem (15 – 2B)

a)
July. 1 Retained Earnings ($500,000 ÷ 5par) × $0.50 50,000
Dividends Payable – Common Stock 50,000
Aug. 1 Retained Earnings 25,000
Accumulated Depreciation 25,000
Sept. 1 Dividends Payable – Common Stock 50,000
Cash 50,000
Dec. 1 Retained earnings (10,000 × $18) 180,000
(10,000 × $5)
– common stock (10,000 ×$13)
Dec. 15 Retained earnings (12,000 × $3) 36,000
Dividends payable – preferred stock 36,000
(b)
Preferred Stock
Jan. 1 balance √ 600,000
Common Stock
Paid in capital in excess of par value – Preferred Value

Paid in capital in excess of par value – Common Value
Dec. 1 130,000 430,000
Common stock – dividends distributable
Dec. 1 50,000 50,000
Retained earnings
Jan. 1 Balance 800,000
July. 1 Cash Dividend – Common 50,000 750,000
Aug. 1 Prior Period Adjustment 25,000 725,000
Dec. 1 Stock Dividend – Common 180,000 545,000
Dec. 15 Cash Dividend – Preferred 36,000 509,000
Dec. 31 Net Income 385,000 894,000
(c) Hassan Company

Balance, January 1, as reported …………………….. $800,000
Correction of 2004 depreciation ……………………. 25,000
Balance, January 1, as adjusted ……………………… 775,000
Add: net income …………………………………………… 385,000
1,160,000
Less : cash dividends – preferred $ 36,000
Stock dividends – common 180,000
Cash dividends – common 50,000 266,000
Balance, December 31 $894,000
(d) Hassan Company
December 31, 2005
Paid in capital
Capital stock
o 6% preferred stock, 50 par value, 12,000 shares issued 600,000
o Common stock, 5 par value, 100,000 shares issued 500,000
o Common stock dividends distributable (10,000 shares) 50,000 550,000

In excess of par value – preferred stock 200,000
In excess of par value – common stock 430,000
(+) Retained earnings (see note B ) 894,000
Total stockholders’ equity 2,674,000
Note B: retained earnings is restricted for plant expansion, 200,000.
Problem (15 – 3B)

a) Retained Earnings
Sept. 1 PPA 63,000 Jan. 1 Balance 1,170,000
Oct. 1 Cash Dividends 250,000 Dec. 31 Net Income 495,000
Dec. 31 Stock Dividends 450,000
Dec. 31 Balance 902,000
(b) Chen Corporation
Balance, January 1, as reported …………………….. $1,170,000
(-) Correction of overstatement of 2004 Net income
because of understatement of depreciation (63,000)
Balance, January 1, as adjusted ………………………. 1,107,000
add: Net Income …………………………………………….. 495,000
1,602,000
Less : Cash Dividends $ 250,000
Stock Dividends 450,000 (700,000)
Balance, December 31 $ 902,000
(c) Chen Corporation
December 31, 2005
Paid In Capital
Capital Stock
8% preferred stock, $50 par value,
cumulative, 20,000 shares authorized
15,000 shares issued and outstanding $ 750,000
Common stock, $10 par value,
500,000 shares authorized ,
250,000 shares issued and outstanding $ 2,500,000
Common stock dividends distributable 250,000 2,750,000
In excess of par value – preferred stock 250,000
In excess of par value – common stock 400,000
(+) Retained earnings ( see note x) 902,000
Note X : retained earnings is restricted for plant expansion , $200,000
d) preferred dividend = 15,000 × $4 = $60,000*

earnings per share = = $1.81
e) total cash dividends $ 250,000

allocated to preferred stock
dividend in arrears - 2004 (15,000 × $4) $60,000
2005 dividend 60,000 (120,000)
Remainder To Common Stock $ 130,000
problem (15 – 4B)

a)
Stengel Corporation
March 31, 2005
stockholders’ equity
paid in capital
capital stock
common stock, no-par value,

b) Stengel Corporation
June 30, 2005
paid in capital
capital stock
c) Stengel Corporation
Sept 30, 2005
paid in capital
capital stock
252,000 shares issued and outstanding $1,556,000*
(+) Retained earnings 284,000**
*$1,400,000 + [(240,000 × .05) × $13] **$440,000 – $156,000
d) Stengel Corporation
Dec 31, 2005
paid in capital
capital stock
o common stock, no-par value,
(+) Retained earnings 508,000*

$284,000 – ($.50 × 252,000) + $350,000 *

Sheet (3) : Corporations: Dividends, Retained Earnings, and Income Reporting

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Sheet (3) : Corporations: Dividends, Retained Earnings, and Income Reporting

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Edited by Dr/ Magdy Kamel

1 | Page Dr/ Magdy Kamel

1) Cash dividends (requirement for cash distribution )

Entries for cash dividends :

Three dates are important in connection with the dividends,

(1) on the declaration date .

2 | Page Dr/ Magdy Kamel

2) At The Record Date:

2) The Record Date

3) on The Payment Date

3 | Page Dr/ Magdy Kamel

Effect of stock dividneds :

They change the composition of stockholders’ equity , because a portion of retained

4 | Page Dr/ Magdy Kamel

Prior period adjustment :

Retained earnings statement

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1. net loss 1. Net income

3. cash dividends and stock dividends 3. beginning retained earnings

Earnings per share (EPS) =

Journalizing tax expense

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b) Preferred Stock Dividends = 9% × 2,000 shares × 50 par = 9,000 per year.

b) Stock dividend = 15% × [ + 60,000 share ] = 39,000*

Before After After

Total paid in capital 600,000 642,000 600,000

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The balance of stockholders’ equity after stock dividend :-

Exercise (15 – 8) CASTLE CORPORATION

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Note R: retained earnings is restricted for plant expansion, $100,000

Exercise (15 – 10)

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b) Earning per shares = = $7.22

Exercise (15 – 11)

Return on common × 100 = 17.5% × 100 = 15%

Exercise (15 – 12)

Return on common × 100 = 13.3% × 100 = 9%

Exercise (15 – 13)

Problem (15 – 1A)

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Apr. 15 Stock dividends = 10% × 90,000 = 9,000*

July. 1 Memo – two for one stock split increases the

Dec. 1 Retained Earnings ($.50 × 198,000) 99,000

Dec. 31 Income Summary 250,000

Paid in capital in excess of par value

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Common stock dividends distributable

(c) SNIDER CORPORATION

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Dec. 1 Retained Earnings (9,000* × $16) 144,000

Dec. 31 Income Summary 380,000

Paid in capital in excess of par value – Preferred Value

Paid in capital in excess of par value – Common Value

Common Stock Dividends Distributable

(c) TRACEY INC.

(d) TRACEY INC.

(b) NAKONA CORPORATION

Note A : retained earnings is restricted for plant expansion , $100,000

d) preferred dividend = %8 × $1,000,000 = $80,000*

e) Total Dividends $600,000