On December 1, 2017, the board of directors of a silver corporation declared a P5 per ordinary...

Question:

On December 1, 2017, the board of directors of a silver corporation declared a P5 per ordinary share cash dividend to stockholder's of record on December 15, 2017, payable on December 31, 2017. Silver corporation has 20,000 ordinary shares issued. It reacquired 2,000 of these ordinary shares in the market and held them in the treasury.

Required:

A. Determine the number of ordinary shares outstanding.

B. Prepare journal entries on the date of declaration and on the date of payment.

Cash Dividends

Cash dividends are one of the dividend types in which all outstanding shares are entitled to receive cash from the company as part of their share in the company's income. This is the most popular type of dividends due to easy calculation but subject to availability of the funds.

Answer and Explanation:

A. Determine the number of ordinary shares outstanding.

Ordinary shares issued 20,000
Reacquired shares (2,000)
Outstanding Shares 18,000

B. Prepare journal entries on the date of declaration and on the date of payment.

For the dividend declaration, only the total outstanding shares are entitled to dividends.

To record the entry on the date of declaration:

Accounts Debit Credit
Retained Earnings (18,000 * $5) $90,000
Dividends Payable 90,000

To record the entry on the date of payment:

Accounts Debit Credit
Dividends Payable 90,000
Cash (18,000 * $5) $90,000

Learn more about this topic:

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Cash Dividends & Dividend Payment

from Finance 101: Principles of Finance

Chapter 16 / Lesson 1
4.5K

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