Chapter 16: Accounting for Dividends

What is retained earnings?

Retained earnings are the accumulated profits of a corporation that have not yet been distributed to shareholders.

What are the two types of retained earnings?

1. Unrestricted – available for dividends
2. Appropriated (restricted) – not available for distribution
   Important note: Restriction ≠ may nakatagong cash (It’s just accounting classification!)

What is a deficit?

A deficit is a negative retained earnings balance.
Kapag negative ang retained earnings → deficit (lugi ang company overall).

What is capital deficiency?

Capital deficiency happens when total shareholders’ equity is negative.
Kapag negative na buong equity ng company → capital deficiency.

What are dividends?

Dividends are distributions of profits to shareholders.
Ang dividends ay pamamahagi ng kita sa mga shareholders.

What are the types of dividends?

1. Cash dividends
2. Property dividends
3. Share dividends

What are the 3 important dates in dividends?

Date of:

1. Declaration – dineclare ang dividend
2. Record – sino ang entitled
3. Distribution – actual na bayad
   👉 ONLY declaration & distribution → may journal entry

What happens on the date of declaration?

The company recognizes a liability for dividends.
Nagkakaroon ng utang ang company (dividends payable).
👉 Entry:
Dr Retained Earnings
Cr Dividends Payable

What happens on the date of record?

No journal entry is made.
Walang entry — listahan lang ng shareholders.

What happens on the date of distribution?

The company pays the dividends.
Binabayaran na ang dividends.
👉 Entry:
Dr Dividends Payable
Cr Cash

Who are entitled to dividends?

Only outstanding shares.
👉 Formula:
Outstanding = Issued + Subscribed – Treasury

How do you compute cash dividends?

Outstanding shares × dividend per share
Ang formula ay: Outstanding shares × dividend per share
👉 Example:
9,000 × ₱50 = ₱450,000

What are 'small' share dividends?

Less than 20% of outstanding shares → recorded at fair value
Mas mababa sa 20% → fair value ang gamit
👉 May share premium

What are 'large' share dividends?

20% or more → recorded at par value
20% pataas → par value lang
👉 Walang share premium

What are preference shares’ advantages in dividends?

They are paid first before ordinary shareholders.
Sila ang unang binabayaran bago ang common shareholders.

Difference: cumulative vs noncumulative?

Cumulative → unpaid dividends accumulate
Noncumulative → lost if not declared

Difference: participating vs nonparticipating?

Participating → may extra share in profits
Nonparticipating → fixed dividend only

What are liquidating dividends?

Dividends paid out of capital, not retained earnings.

What account is used for liquidating dividends?

Capital liquidated (contra equity)

What is a share split?

A change in number of shares and par value without affecting total equity.
Note: No journal entry → memo only

What is split up?

More shares, lower par value
Mas maraming shares, mas mababang par

What is split down (reverse split)?

Fewer shares, higher par value.