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Thus, 280,000 shares are presently outstanding, in the hands of investors. To date, three hundred thousand of these shares have been issued but twenty thousand shares were recently bought back as treasury stock. To illustrate, assume that the Hurley Corporation has one million shares of authorized common stock. The date of payment (also known as the date of distribution).The date of record (and the related ex-dividend date).reported net income for 2008 of over $83 million but paid no dividend.Ĭhronologically, accounting for dividends involves several dates with approximately two to five weeks passing between each: The board of directors prefers that all profits remain in the business to stimulate future growth. Other businesses stress rapid growth and rarely, if ever, pay a cash dividend. Such decisions typically lead to a drop in the market price of a corporation’s stock because of the negative implications. Unfortunately, one result of recent economic times has been that a number of businesses have been forced to reduce or even eliminate dividend distributions. Some corporations even boast about having paid a constant or rising annual dividend for many years. How does a corporation report the declaration and distribution of a cash dividend?Īnswer: Dividends provide a meaningful signal to investors about the financial health of a business. The board considers current cash balances as well as the projected needs of the business before deciding on the amount, if any, of a dividend payment. Because the corporation is effectively giving away its assets, dividends require formal approval by the board of directors-known as a dividend declaration. Dividends and long-term capital gains (gains on the sale of certain investments that have been held for over a year) are especially appealing to individual investors because they are taxed at a lower rate than most other types of income.ĭividends are usually paid in cash and represent the profits of a business being passed along to the owners. Question: As stated in Chapter 1 “Why Is Financial Accounting Important?”, a vast majority of investors purchase capital stock for only two reasons: price appreciation and dividends. Record the issuance of a stock dividend.Explain the rationale for a stock dividend or stock split.Define the characteristics of a cumulative dividend.
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