Question

(1) What is a dividend and what is the difference between cash dividends and stock dividends? What does it mean when shares of stock are outstanding?

(2) Please explain what is meant by the terms “Date of Declaration,” “Date of Record,” and “Date of Payment” when referring to cash dividends.

(3) What type of account is the “Cash Dividends” account?

(4) On March 15, the board of directors of Beer Incorporated declared a $0.20 per-share dividend on its common stock to shareholders of record on March 31, payable on April 15. Beer has 40,000 shares of stock authorized, 25,000 shares issued, and 18,000 shares outstanding.

Please select TWO of the following dates and show what the journal entries should look like. Make sure you label which ones you have selected.

a. Date of Declaration:

b. Date of Record:

c. Date of Payment:

Answer 1

Answer 1:

A dividend can be defined as a portion of a company's profit/ earnings which the company decides to distribute among the shareholders.

The cash dividend is said to be distributed when cash payments are made directly to the shareholders. Stock Dividend happens when the company issue bonus shares without receiving any payment from the shareholder.

The share of stock outstanding simply means outstanding shares being held by shareholders.

Answer 2:

Date of Declaration: the First date when dividends are announced and must be approved by members of the company

Record Date: It is like a cut-off date specified by the board of the company to help determine which shareholders will receive a dividend

Payment Date: It is the date when the company will issue the payment of dividend.

Answer 3:

Cash Dividend is a type of Balance sheet account but of a temporary nature, as it is closed by the year by adjusting through retained earnings.

Answer 4: In the above case dates are as follows:

a. Date of Declaration: March 15

b. Date of Record: March 31

c. Date of Payment: April 15