Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

12. Stockholders' Equity

Dividends and Dividend Preferences

Financial Accounting

12. Stockholders' Equity

Dividends and Dividend Preferences

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Multiple Choice

When does a corporation record an increase in Dividends Payable?

On the date the dividend is paid to shareholders

On the date the board of directors declares a dividend

On the date shareholders receive their dividend checks

On the date the corporation earns net income

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Verified step by step guidance

Understand the concept of Dividends Payable: Dividends Payable is a liability account that represents the amount a corporation owes to its shareholders after declaring a dividend.

Identify the key event that triggers the recording of Dividends Payable: A corporation records an increase in Dividends Payable when the board of directors formally declares a dividend. This is known as the 'declaration date.'

Clarify why the declaration date is important: On the declaration date, the corporation commits to paying the dividend, creating a legal obligation. This obligation is recorded as a liability in the Dividends Payable account.

Differentiate the declaration date from other dates: The payment date (when shareholders receive their checks) and the date the corporation earns net income are not directly related to recording Dividends Payable. The liability is only recognized on the declaration date.

Summarize the journal entry: On the declaration date, the corporation debits Retained Earnings (reducing equity) and credits Dividends Payable (increasing liabilities) to reflect the obligation to pay the declared dividend.