Question

At which date are dividends recorded in the General Journal?

Why is convertible debt called convertible debt?

Answer 1

Dividends payable are a liability to the company. Usually, a dividend is declared by the company before making the actual payment. Therefore, two general journal entries are recorded for the same. First on the date of declaration of dividend, and second on the date of actual payment of dividend.

1. Entry on the date of declaration of dividend

Retained earnings (Dr.)

Dividends payable (Cr.)

2. Entry on the date of payment of dividend

Dividends payable (Dr.)

Cash/Bank (Cr.)

• In the case of convertible debt, the company gives an option to the debt holders of converting their debt into stock/shares at a future date.
• The company issues a number of shares predetermined at the time of the issue of convertible debt to debt holders interested in exercising this option.
• Hence, the previous debt holders become shareholders (if they convert their debts), and enjoy the benefits of a shareholder.
• Once the debt is converted into stock/shares, it can not be converted back into debt.