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Prepare the entries for cash dividends and stock dividends. Identify the items reported in a retained earnings statement. Prepare and analyze a comprehensive stockholders' equity section. Describe the form and content of corporation income statements.
Compute earnings per share.
Dividends may be declared and paid in cash or stock. Cash dividends are not a liability of the corporation until they are declared by the board of directors. The amount of a cash dividend liability is recorded on the date of record because it is on that date that the persons or entities who will receive the dividend are identified.
A 3 for 1 common stock split will increase total stockholders' equity but reduce the par or stated value per share of common stock. Retained earnings represents the amount of cash available for dividends. Net income of a corporation should be closed to retained earnings and net losses should be closed to paid-in capital accounts.
A debit balance in the Retained Earnings account is identified as a deficit. A correction in income of a prior period involves either a debit or credit to the Retained Earnings account.
Prior period adjustments to income are reported in the current year's income statement. Retained earnings that are restricted are unavailable for dividends. Restricted retained earnings are available for preferred stock dividends but unavailable for common stock dividends.
A retained earnings statement shows the same information as a corporation income statement. A detailed stockholders' equity section in the balance sheet will list the names of individuals who are eligible to receive dividends on the date of record. Common Stock Dividends Distributable is shown within the Paid-in Capital subdivision of the stockholders' equity section of the balance sheet.
A major difference among corporations, proprietorships, and partnerships is that a corporation's income statement reports income tax expense. A corporation incurs income tax expense only if it pays dividends to stockholders. Dividends, Retained Earnings, and Income Reporting 14 - 5 Income tax expense usually appears as a separate section on a corporation income statement.
Earnings per share is calculated by dividing net income by the weighted average number of shares of preferred stock and common stock outstanding. Preferred dividends paid are added back to net income in calculating earnings per share for common stockholders.
Earnings per share indicates the net income earned by each share of outstanding common stock. Earnings per share is reported for both preferred and common stock.
Most companies are required to report earnings per share on the face of the income statement. Additional True-False Questions A dividend based on paid-in capital is termed a liquidating dividend.
Common Stock Dividends Distributable is reported as additional paid-in capital in the stockholders' equity section.
A prior period adjustment is reported as an adjustment of the beginning balance of Retained Earnings. Income tax expense and the related liability for income taxes payable are recorded when taxes are paid.A corporation issued $,, 10%, 5-year bonds on January 1, for $,, which reflects an effective-interest rate of 8%.
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