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					                                                Advanced Accounting
                                                         Chapter 10

 may be declared only by the board of directors
 distribution of earnings may be cash or stock dividends
    cash dividends
        common - expressed as a specific amount per share
        preferred - expressed as a percentage of par-value
        usually paid on a quarterly basis
        paid out of retained earnings

ex: declared a quarterly cash dividend of $1 per
    share with 250,000 common shares outstanding

       Dividends-Common               Dividends Payable-Common
       250,000                                   250,000

ex: declared a quarterly cash dividend on 8% preferred stock, $50 par-value,
    2000 preferred shares outstanding (.08 * 50 * 2000 * 3/12)

       Dividends-Preferred          Dividends Payable-Preferred
          2,000                                 2,000

ex: paid cash dividends

 Dividends Payable-Common                 Cash in Bank
      250,000                                    252,000
 Dividends Payable-Preferred

      stock dividends
        distribution of a company’s own stock
        does not decrease a company’s assets
        return on investment to stockholders without distributing cash or other
          assets that may be needed to finance future expansion
        transfers amounts from retained earnings to paid-in capital at fair market
          value of the stock

ex: declared 10% common stock dividend with 250,000 shares outstanding and a
    current market value of $28 per share, $25 par-value (250,000 * .10 * 28)

                                  Common Stock
  Retained Earnings           Dividend Distributable
  700,000                               625,000
                                Paid-in Capital in
                             Excess of Par - Common
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                                       Advanced Accounting
                                                Chapter 10
ex: distributed stock dividend

        Common Stock
    Dividend Distributable       Common Stock
      625,000                         625,000

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                                                 Advanced Accounting
                                                          Chapter 10
Stock Splits
 deliberate split in the par or stated value of a corporation’s stock and the
   issuance of a proportionate number of additional shares
 decreases the cost of the stock
 increases the salability

    Common Stock                Common Stock
   ($25 par value)            ($12.50 par value)
 6,250,000                            6,250,000

Treasury Stock
 issued stock that is reacquired and held by the corporation
 bought on the open market or donated by stockholders
 allows for:
    stock to be reissued to employees under bonus or stock purchase plans
    supporting the market price if it is low
    having shares available for exchanges if the company acquires other

ex: bought 2,000 shares of own stock at $29 per share on the open market

   Treasury Stock             Cash in Bank
   58,000                            58,000

ex: sold 100 shares of treasury stock at $30 per share

    Cash in Bank                Treasury Stock
    3,000                              2,900
                             Paid-In Capital from
                            Sale of Treasury Stock

ex: reissued 200 shares of treasury stock as a bonus to employees

Bonus to Employees             Treasury Stock
   5,800                              5,800

Appropriated Retained Earnings
 portion of retained earnings that is earmarked for some specific purpose
    plant expansion
    provide for bond interest payments
    self-insurance
    potential decreases in inventory value
    contingencies - unexpected events

ex: restrict $25,000 of retained earnings each year for ten years for a new building

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                                         Advanced Accounting
                                                  Chapter 10
                       Retained Earnings
Retained Earnings   Appropriated for Building
 25,000                           25,000

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