What are the three relevant dates involving cash dividends? Describe each.
The three important dates including cash dividends are the declaration date, date of record, and the date of payment.
Cash dividends are the most widely recognized type of payment and are paid out in cash the corporate possesses to the stockholders.
Such dividends are a type of investment income of the shareholder, usually treated as acquired in the year they are paid.
1. Declaration date:
On the date of declaration, the board of directors of the corporation announces the intention to pay the dividend. The cash dividend declaration creates an obligation for the corporation.
2. Recording date:
The recording date is the date on which the corporation records which stockholders get dividend checks.
3. Payment date:
It is the date on which the actual payment of dividends is made to the stockholders. Dividend payment generally follows the record date by possibly a week or two.
Preparing a statement of retained earnings
Kingston, Inc. had beginning retained earnings of $135,000 on January 1, 2018. During the year, Kingston declared and paid $85,000 of cash dividends and earned $75,000 of net income. Prepare a statement of retained earnings for Kingston, Inc. for the year ending December 31, 2018.
Journalizing issuance of stock and preparing the stockholders’ equity section of the balance sheet
The charter of Evergreen Corporation authorizes the issuance of 900 shares of preferred stock and 1,400 shares of common stock. During a two-month period, Evergreen completed these stock-issuance transactions:
Mar. 23 Issued 230 shares of $3 par value common stock for cash of $15 per share.
Apr. 12 Received inventory with a market value of $27,000 and equipment with a market value of $19,000 for 320 shares of the $3 par value common stock.
17 Issued 900 shares of 5%, $20 par value preferred stock for $20 per share.
2. Prepare the stockholders’ equity section of the Evergreen balance sheet as of April 30, 2018, for the transactions given in this exercise. Retained Earnings has a balance of $73,000 at April 30, 2018
Computing dividends on preferred and common stock and journalizing
The following elements of stockholders’ equity are from the balance sheet of Sneed Marketing Corp. at December 31, 2017:
Preferred Stock—4%, $2 Par Value; 80,000 shares
authorized, 55,000 shares issued and outstanding
Common Stock—$0.10 Par Value; 8,750,000 shares
authorized, 8,000,000 shares issued and outstanding
Sneed paid no preferred dividends in 2017.
1. Compute the dividends to the preferred and common shareholders for 2018 if total dividends are $185,000 and assuming the preferred stock is noncumulative. Assume no changes in preferred and common stock in 2018.
Match the accounting terminology to the definitions.
1. Factoring receivables a. A monetary claim against a business or an individual.
2. Debtor b. The party to a transaction who takes on an obligation/payable.
3. Accounts receivable c. Using receivables as security (collateral) for a loan.
4. Maturity date d. The right to receive cash in the future from customers for goods sold or for services provided.
5. Receivable e. The date when a note is due.
6. Pledging receivables f. Selling receivables to a finance company or bank.
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