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University of Toronto Scarborough
Financial Accounting
Liang Chen

Dividends L;L03L8,5747,9, 06:,O L897L-:9L4341,5479L4341,.47547,9L4380,73L3J8 to its shareholders. Cash dividends are the most common. Stock dividends are also declared often. Dividends may be expressed in two ways: as a dollar amount per share, or as a percentage of the stated or par value of the shares if shares have been issued with stated or par values. Dividends are generally reported quarterly as a dollar amount per share. Cash Dividends A cash dividend is a pro rata distribution of cash to shareholders. For a dividend distribution to occur, it must have all the following: Sufficient retained earnings, adequate cash, and a declaration of dividends. Note that dividends are not accrued; they only become a liability when declared. The amount and timing are crucial as large cash dividends may lead to liquidity problems and small andor missed dividends may lead to unhappiness among shareholders. Entries for Cash Dividends three dates are important for dividends: the declaration date, the record date, and the payment date. On the declaration date, the board of directors formally declares the cash dividend and announces it to shareholders. Declaration of a cash dividend commits the corporation to a legal obligation. An entry is required to recognize the decrease in retained earnings and the increase in the current liability, Dividends Payable. The entry being DR C
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