Question

(Cash Dividend and Liquidating Dividend) Lotoya Davis Corporation has 10 million shares of common stock issued and outstanding. On June 1, the board of directors voted an 80 cents per share cash dividend to stockholders of record as of June 14, payable June 3

Instructions

1. Prepare the journal entry for each of the dates above, assuming the dividend represents a distribution of earnings.
2. How would the entry differ if the dividend were a liquidating dividend?

Short answer

Total Dividend Paid: $8,000,000

Step-by-step solution

Meaning of Dividend

A dividend is given to the shareholders from the company profit and retained earnings. After ascertaining profit and accumulating retained earnings, a company pays dividend according to the value of the share a shareholder hold.

Preparing Journal Entries

S.no.	Particular	Debit $	Credit $
June 1	Retained Earnings	8,000,000
	Dividend payable		8,000,000
	To record the issue of dividends.
June 14	No Entry on date of record
June 30	Dividend Payable	8,000,000
	Cash		8,000,000
	To record the payment of dividends.

Explaining the difference in entries if the dividend were liquidating dividend

If there were a liquidating dividend, the debit entry on the date of declaration would be to additional Paid-in Capital rather than Retained Earnings.