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

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

When does a corporation record a liability related to dividends?

On the date shareholders are identified (date of record)

On the date the dividend is paid to shareholders

On the date the board of directors declares the dividend

At the end of the fiscal year

Previous problemNext problem

Verified step by step guidance

Understand the concept of dividends: Dividends are distributions of a corporation's earnings to its shareholders, typically in the form of cash or additional shares. Recording a liability for dividends involves recognizing the obligation to pay shareholders.

Learn about the key dates related to dividends: There are three important dates in the dividend process: (1) the declaration date, (2) the date of record, and (3) the payment date. Each has a specific accounting treatment.

Focus on the declaration date: The declaration date is when the board of directors formally announces the dividend and commits to paying it. At this point, the corporation incurs a legal obligation to pay the dividend, and a liability is recorded in the financial statements.

Understand why the liability is not recorded on other dates: On the date of record, shareholders eligible to receive the dividend are identified, but no liability is recorded because the obligation was already established on the declaration date. On the payment date, the liability is settled by paying the dividend, but no new liability is created.

Apply the accounting principle: On the declaration date, the corporation records the liability by debiting 'Retained Earnings' (to reduce equity) and crediting 'Dividends Payable' (to recognize the liability). This ensures the financial statements reflect the obligation to pay dividends.