In the previous discussion, there were several references to the nominal value. Many states require shares to have a certain par value (or, in some cases, a “declared value”). Thus, it is said that the nominal value represents the “legal capital” of the company. Theoretically, initial purchasers of shares are necessarily liable to the company for the difference between the issue price and the par value if the share is issued below the par value. In practice, however, the nominal value of ordinary shares is set well below the issue price, thus nullifying any practical effect of this latent provision. Observing the above entry, it is important to note that the July 1 statement establishes a legally enforceable liability to shareholders. Therefore, the responsibility is noted in the books at the time of declaration. Remember (from the previous chapters) that the dividend account directly reduces retained earnings (it`s not an effort in calculating income; it`s an income distribution)! If previously declared dividends are paid, the corresponding registration would require a charge on dividends payable and a credit on cash. Occasionally, a corporation may issue shares with no par value that are seized by debiting cash and crediting the common shares for the issue price. A separate paid-up capital above the nominal value is not required. A stock dividend distributes the shares in such a way that, after the distribution, all shareholders have exactly the same percentage of ownership that they held before the dividend. There are two types of stock dividends: small dividends in shares and large dividends in shares.

The main difference is that small dividends are recorded at market value and large dividends at face or face value. At the time of the dividend declaration, the Management Board shall set a registration date and a payment date. The date of registration determines who is entitled to a dividend; Shareholders who own shares at the time of registration are entitled to a dividend, even if they sell it before the payment date. Investors who purchase shares after the registration date but before the payment date are not entitled to dividends because they did not own the shares at the time of subscription. These shares must be sold ex dividend. The payment date is the date on which the payment to the investor is made up to the declared dividend. While some companies may use a temporary account, dividends declared instead of retained earnings, most companies weigh directly on retained earnings. Ultimately, all declared dividends result in a decline in retained earnings. Here`s an example of how a dividend statement affects current liabilities: Major Dough Corporation declares a dividend of $0.05 per share. The outstanding shares identified on the reporting date amount to 100,000. The total amount of the dividend payment is $5,000 or 100,000 shares multiplied by the dividend of $0.05 per share. A journal entry is recorded to reduce retained earnings and increase liabilities – retained earnings are charged and dividends payable are credited with $5,000.

When the dividend is paid, the dividend account to be paid is reduced or debited, and the cash is credited with $5,000. Sometimes shares may be issued for land or other tangible assets, in which case the debit would be made in the previous entry of the specific asset account (e.g. land instead of cash). Where shares are issued for non-cash assets, the amount of the record is based on the fair value of the asset (or the fair value of the share if it can be determined more clearly). Note that dividends are only distributed or paid to outstanding shares. Own shares are not outstanding, so no dividends are declared or distributed for these shares. Regardless of the type of dividend, the declaration always results in a reduction in retained earnings. The payment date is the third important dividend-related date. This is the date on which dividend payments are prepared and sent to shareholders who owned shares at the time of filing. Associated journal registration is an execution of the obligation established on the day of the declaration; it reduces the cash dividend account (with a debit) and the cash account (with a credit).

Cynadyne, Inc. owns 4,000 approved common shares valued at $0.20, 2,800 shares issued and 400 shares held in its own possession at the end of the first year of operation. On May 1, the Company declared a cash dividend of $1 per share with a May 12 listing date to be paid on May 25. What journal entries are prepared to record dividends? A real estate dividend is created when a company declares and distributes assets other than cash. The dividend usually includes either the distribution of shares of another company owned by the issuing company (one of its assets) or a distribution of inventory. For example, the Walt Disney Company may distribute tickets to visit its theme parks. Anheuser-Busch InBev, the company that owns the Budweiser and Michelob brands, may choose to distribute a case of beer to each shareholder. A real estate dividend can be declared if a company wants to reward its investors but does not have the money to distribute it, or if it needs to keep its existing cash for other investments. Real estate dividends are not as common as cash or stock dividends. They are recognised at the fair value of the asset distributed. To illustrate the recognition of a real estate dividend, we assume that at the end of its second year of operation, Duratech Corporation owns 60,000 shares with a par value of $0.50 and that the Company`s Board of Directors declares a real estate dividend consisting of a set of soft drinks that it produces for each common shareholder.