On February 1, the company records this entry: On February 1, ABC International's board of directors declares a cash dividend of $0.50 per share on the company's 2,000,000 outstanding shares, to be paid on June 1 to all shareholders of record on April 1. The accounting for a liquidating dividend is similar to the entries for a cash dividend, except that the funds are considered to come from the additional paid-in capital account. When the board of directors wishes to return the capital originally contributed by shareholders as a dividend, it is called a liquidating dividend, and may be a precursor to shutting down the business. Scrip DividendĪ company may not have sufficient funds to issue dividends in the near future, so instead it issues a scrip dividend, which is essentially a promissory note (which may or may not include interest) to pay shareholders at a later date. This accounting rule can sometimes lead a business to deliberately issue property dividends in order to alter their taxable and/or reported income. Since the fair market value is likely to vary somewhat from the book value of the assets, the company will likely record the variance as a gain or loss. Record this distribution at the fair market value of the assets distributed. The fair value of the additional shares issued is based on their fair market value when the dividend is declared.Ī company may issue a non-monetary dividend to investors, rather than making a cash or stock payment. To record a stock dividend, transfer from retained earnings to the capital stock and additional paid-in capital accounts an amount equal to the fair value of the additional shares issued. If the transaction is for a greater proportion of the previously outstanding shares, then treat the transaction as a stock split. If the company issues less than 25 percent of the total number of previously outstanding shares, then treat the transaction as a stock dividend.
Stock DividendĪ stock dividend is the issuance by a company of its common stock to its common shareholders without any consideration. On the date of payment, the company issues dividend payments. The date of record is the date on which dividends are assigned to the holders of the company's stock.
On the date of declaration, the board of directors resolves to pay a certain dividend amount in cash to those investors holding the company's stock on a specific date. The cash dividend is by far the most common of the dividend types used. However, there are several types of dividends, some of which do not involve the payment of cash to shareholders. A dividend is generally considered to be a cash payment issued to the holders of company stock.
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