[calicpa]

I thought the J/E for a liquidating dividend is:

Db: RE

APIC

Cr: Dividends payable

Why doesn’t RE decrease in this situation? It is being debited just as is APIC.

Ole Corp. declared and paid a liquidating dividend of $100,000. This distribution resulted in a decrease in Ole’s

Paid-in capital Retained earnings

No No

Yes Yes

No Yes

Yes No

D is Correct!

A liquidating dividend is a return of capital. Its source is not earnings, and, therefore, it is not retained earnings. The firm is liquidating part of its permanent capital. The usual account to debit for a liquidating dividend is additional paid-in capital.

BEC - 84, 4/6/13
AUD - 77, 5/28/13
REG - 83, 4/12/14
FAR - 83, 10/3/13

Ethics - 90% 4/24/13

150 unit education requirement met!
Work experience met!

[NYCaccountant]

Liquidating dividends are returns of capital. Whenever you pay a dividend that is more than your current retained earnings balance, you're not paying shareholder dividends, you're returning their initial capital. So you are not paying a dividend out of earnings, but simply returning capital to the shareholders.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[NYCaccountant]

Liquidating dividends are returns of capital. Whenever you pay a dividend that is more than your current retained earnings balance, you're not paying shareholder dividends, you're returning their initial capital. So you are not paying a dividend out of earnings, but simply returning capital to the shareholders.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[calicpa]

so on the F/S's does the RE balance decrease? If it is debited, and doesn't decresease, where does the credit comef rom?

BEC - 84, 4/6/13
AUD - 77, 5/28/13
REG - 83, 4/12/14
FAR - 83, 10/3/13

Ethics - 90% 4/24/13

150 unit education requirement met!
Work experience met!

[calicpa]

so on the F/S's does the RE balance decrease? If it is debited, and doesn't decresease, where does the credit comef rom?

BEC - 84, 4/6/13
AUD - 77, 5/28/13
REG - 83, 4/12/14
FAR - 83, 10/3/13

Ethics - 90% 4/24/13

150 unit education requirement met!
Work experience met!

[NYCaccountant]

The credit is cash or dividends payable and the debit is additional paid in capital.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[NYCaccountant]

The credit is cash or dividends payable and the debit is additional paid in capital.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[calicpa]

hmmm my textbook has what this has

https://accounting-financial-tax.com/2009/06/types-of-dividends-and-its-journal-entries/

BEC - 84, 4/6/13
AUD - 77, 5/28/13
REG - 83, 4/12/14
FAR - 83, 10/3/13

Ethics - 90% 4/24/13

150 unit education requirement met!
Work experience met!

[calicpa]

hmmm my textbook has what this has

https://accounting-financial-tax.com/2009/06/types-of-dividends-and-its-journal-entries/

BEC - 84, 4/6/13
AUD - 77, 5/28/13
REG - 83, 4/12/14
FAR - 83, 10/3/13

Ethics - 90% 4/24/13

150 unit education requirement met!
Work experience met!

[NYCaccountant]

Liquidating Dividends

Dividends paid based on other than retained earnings are called “liquidating dividends”, as a return of contributed capital rather than a distribution of retained earnings. They are treated as a reduction of contributed capital, either additional paid-in-capital or a special contracontributed capital account, designated as “Contributed Capital Distributed” as a “Liquidating Dividend”.

Case Example

Let’s assume that the Lie Dharma Putra Company issued dividend to its common stockholders of $2,500,000 of which $1,000,000 is considered income and the rest a return of contributed capital. The following journal entries are required:

1. At the date of declaration

[Debit]. Retained Earnings = 1,000,000

[Debit]. Additional Paid-in-Capital = 1,500,000

[Credit]. Dividends Payable = 2,500,000

2. At the date of payment

[Debit]. Dividends Payable = 2,500,000

[Debit]. Cash = 2,500,000

I took that right out of the link you included. In my example I Assumed that the entire dividend declared was a liquidating dividend and in that the case the entire thing would have been debited out of additional paid in capital. In the example in the book, only a portion of the declared dividend is liquidating, which is why they have two debits (Retained earning and additional paid in capital)

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[NYCaccountant]

Liquidating Dividends

Dividends paid based on other than retained earnings are called “liquidating dividends”, as a return of contributed capital rather than a distribution of retained earnings. They are treated as a reduction of contributed capital, either additional paid-in-capital or a special contracontributed capital account, designated as “Contributed Capital Distributed” as a “Liquidating Dividend”.

Case Example

Let’s assume that the Lie Dharma Putra Company issued dividend to its common stockholders of $2,500,000 of which $1,000,000 is considered income and the rest a return of contributed capital. The following journal entries are required:

1. At the date of declaration

[Debit]. Retained Earnings = 1,000,000

[Debit]. Additional Paid-in-Capital = 1,500,000

[Credit]. Dividends Payable = 2,500,000

2. At the date of payment

[Debit]. Dividends Payable = 2,500,000

[Debit]. Cash = 2,500,000

I took that right out of the link you included. In my example I Assumed that the entire dividend declared was a liquidating dividend and in that the case the entire thing would have been debited out of additional paid in capital. In the example in the book, only a portion of the declared dividend is liquidating, which is why they have two debits (Retained earning and additional paid in capital)

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[calicpa]

GOTCHA! i got it thanks a lot!

BEC - 84, 4/6/13
AUD - 77, 5/28/13
REG - 83, 4/12/14
FAR - 83, 10/3/13

Ethics - 90% 4/24/13

150 unit education requirement met!
Work experience met!

[calicpa]

GOTCHA! i got it thanks a lot!

BEC - 84, 4/6/13
AUD - 77, 5/28/13
REG - 83, 4/12/14
FAR - 83, 10/3/13

Ethics - 90% 4/24/13

150 unit education requirement met!
Work experience met!

[Author]

Replies