1. Identify the various dates associated with a dividend distribution.
2. Prepare all journal entries to report a cash dividend payment.
3. Define the characteristics of a cumulative dividend.
4. Explain the rationale for a stock dividend or stock split.
5. Record the issuance of a stock dividend.
Question: “Why Is Financial Accounting Important?”, a vast majority of investors
purchase capital stock for only two reasons: price appreciation and dividends. 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.
Dividends are usually paid in cash and represent the profits of a business being passed along to the owners.
Because the corporation is effectively giving away its assets, dividends require formal approval by the board of
directors—known as a dividend declaration. 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. How does a corporation report
the declaration and distribution of a cash dividend?
Answer: Dividends provide a meaningful signal to investors about the financial health of a business. Some
corporations even boast about having paid a constant or rising annual dividend for many years. Unfortunately, one
result of recent economic times has been that a number of businesses have been forced to reduce or even eliminate
dividend distributions. Such decisions typically lead to a drop in the market price of a corporation’s stock because
of the negative implications.