Question

Dividends can be declared in 2 forms. 1^st – the board of directors can declare a total dollar value of dividends. This amount becomes the debit to the retained earnings account or 2^nd   -- the board of directors can declare a dividend rate (per share amount). When a dividend is declared, a journal entry is made to reduce Retained Earnings (debit) and increase Dividends Payable (credit) for the dollar value of the dividend declared. If the company declares the total dollar amount as the dividends, the journal entry is written for that dollar amount. If the dividend is declares using a dividend rate, the journal entry amount is calculated using the dividend rate times the number of outstanding shares. Write the journal entry for the declaration of dividend. Beware: Some information may be unnecessary. Reminder: Dividends are calculated using OUTSTANDING shares (issued to date – treasury). If the number of outstanding shares is not provided, assume there is no treasury stock such that outstanding will equal issued.

A company’s Board declared total dividends of $50,000. The company has outstanding shares of

200,000 but the Board declares the total dividend.No calculation is necessary.

dr. Retained Earnings_________________

cr. Dividend Payable_____________________

When a company declares dividends as a “per share” rate, the total dividend amount must be calculated. The company’s Board declares a dividend of $2.50 per share on its 96,000 outstanding shares.

Dividend amount: # of shares o/s x dividend rate__96,000 x 2.5 = ______________

Write the journal entry.

A company’s Board declared total dividends of $35,000. The company has $10 par value common stock with an account balance of $400,000. The Company has no treasury stock. Write the journal entry. Hint: There is extra irrelevant information here.

A company’s Board declares a dividend for $1.50 per share on its outstanding shares. Write the journal entry. The company has $5 par value common stock and a balance in its common stock account of $1,500,000. Note – You will need to calculate the number of shares outstanding (use techniques from 2 above) and then calculate the dividend amount.

Answer 1

Part 1

A company’s Board declared total dividends of $50,000. The company has outstanding shares of

200,000.

Debit Retained Earnings by $ 50,000

Credit Dividend Payable by $ 50000

Part 2

When a company declares dividends as a “per share” rate, the total dividend amount must be calculated. The company’s Board declares a dividend of $2.50 per share on its 96,000 outstanding shares.

Debit Retained Earnings by $ 240000

Credit Dividend Payable by $ 240000

Part 3

A company’s Board declared total dividends of $35,000. The company has $10 par value common stock with an account balance of $400,000. The Company has no treasury stock

Debit Retained Earnings by $ 35000

Credit Dividend Payable by $ 35000

Part 4

A company’s Board declares a dividend for $1.50 per share on its outstanding shares. Write the journal entry. The company has $5 par value common stock and a balance in its common stock account of $1,500,000.  

Debit Retained Earnings by $ 450000

Credit Dividend Payable by $ 450000