Retained Earnings Mrs. Paz Castro

Dividends in General

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An owners’ equity account representing claim on all assets in general and not on any asset in particular.

Shareholders are not guaranteed dividends and dividends do not become a liability of the company until the board of directors has formally declared a dividend distribution.

Section 43 of the Corporation Code states that dividends should only be declared out of the unrestricted retained earnings.

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Dividends may take the form of cash, property or additional shares of stock of the corporation.

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Any form of dividend declaration should be based on the total subscription of a shareholder and not merely on the shares already paid.
Subscribers are considered shareholders from the time their subscriptions are accepted by the corporation and not from the time they are issued stock certificates.
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□ DATE OF DECLARATION
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The board of directors will adopt a resolution declaring that a dividend is to be paid.
The resolution will specify the amount, type and date of payment of this dividend. It will also set a date of record.
Cash dividends are declared solely by the board of directors while share dividends will necessitate the concurrence of at least two-thirds of the outstanding shareholders.
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Legally, declared dividends are obligations of the firm. Dividends to be paid in cash or property became a liability on this date. Shares distributable is also recognized.

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Legally, declared dividends are obligations of the firm. Dividends to be paid in cash or property became a liability on this date. Shares distributable is also recognized.

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An entry is made debiting Retained Earnings and crediting a dividend liability of Shares Distributable account. Some companies debit a Dividends Declared account instead of the Retained Earnings account. This account is nevertheless closed to the Retained Earnings account at the end of the year.