Types Of Dividend Policy - Dividend Decision, Accountancy and Financial management Video Lecture | Accountancy and Financial Management - B Com

hey there students my name is Nathan and
I'm a Czech tutor today we're gonna be
talking about different types of
dividends and how to record them now
what is a dividend well in my own words
I consider a dividend like a bonus
that's given to the owners of a
corporation now no name for owners of a
corporation is shareholders so companies
they distribute what they call shares of
stock which you can see is little pieces
of ownership of that company so if you
buy a share of stock in a company you
own a very little piece of that
corporation so when you buy it the
company records cash and you can record
an investment on your end so their
equity goes up every time that they
issue a share of stock now those
shareholders are occasionally rewarded
either every year every quarter it just
depends on the corporation they're
rewarded with what they call a dividend
it's like a little bonus basically
they're saying thank you for investing
in our corporation here's a little bonus
for you so that's kind of like what a
dividend is so on the left side here
we're going to talk about the three main
types of dividends there's a few others
but these are the three primary types
that you'll see first it's going to be
your cash dividend and that's what it
sounds like they distribute out cash
either every quarter or every year it
just depends on how often they do it
and that's as simple as multiplying the
number of shares that are outstanding so
how many shares of that are in the hands
of the shareholders at this time times
the per share cash amount now that cash
amount is set by the corporation and
just depends so that's a cash dividend
there's also something called a small
stock dividend so they say under twenty
to twenty five percent of the shares
that are outstanding
once again the shares that are
outstanding or is act
what's being held by the shareholders
how many shares are out there at this
point so you multiply the number of
shares outstanding times the market
price per share
so whatever the shares are being traded
at right now on the market times the
stock dividend percentage and again now
that'll be under 20 to 25% for a smokes
small stock dividend now is also a large
stock dividend so that's over 25 percent
same thing but you multiply the shares
outstanding by the par value per share
times the stock dividend percentage so
it's a little different market price for
small stock dividend and par value for a
large stock dividend now those are the
three different types of dividends
there's also three really important
dates that we need to go over first the
Declaration date so that's when the
corporation pretty much they announced
that they're going to go ahead and
distribute a dividend at that time
you're gonna go ahead and record the
payable for that dividend what you owe
now that's going to vary based on the
type of dividend what you need to record
so this point just think about you're
gonna record the payable what you will
owe to those shareholders the second
date is called your record date there's
actually no entry on this date all
you're doing is just going over the list
of the shareholders that you will
distribute the dividend to so no entry
at the record date then you have the
payment date so when you actually pay
out the cash dividend or you distribute
the stock dividend those are the three
main dates now I know it's a lot of
information right now but what we're
gonna do is I'm gonna go ahead and
practice a problem with you and we're
gonna pair it with these concepts on the
left and it'll make a lot more sense so
let's take a look here during 2015
LifeWorks Inc decided to issue a
dividend to their shareholders there are
currently five thousand shares
outstanding power values five dollars a
share and stock is currently being
traded on the market for twenty five a
share so the following are
scenarios we're going to go over each
different type of dividend so you can
see how you record it so on the first
scenario LifeWorks will distribute a
cash dividend at $2 a share outstanding
so record the Declaration and the
payment of the dividend so on the
declaration date you'll go and record a
debit now depends on your teacher but
you can record a debit to retained
earnings or a debit to dividends they
both have the same effects because which
are when your debit in retained earnings
you're reducing it because that's where
dividends are distributed from as from
your retained earnings so you can debit
retained earnings or you can debit
dividends dividends is also a reduction
to retained earnings so they have the
same effect so we'll go and record a
debit to retained earnings here showing
that retained earnings is going down
then we'll go ahead and credit a
dividend pea saying that you will pay it
later on now we got to figure out how
much so for this cash dividend it's $2
per share there's 5,000 shares
outstanding so 5,000 times 2 so that'll
be $10,000 same thing for the payable
now on the payment date let's take a
look you're gonna go ahead and record
the payment of this dividend so if
you're paying it you're gonna go ahead
and debit out your dividend payable
showing that you have now paid this
dividend for the 10,000 then you're
going to go ahead and credit cash this
is a cash dividend so that's fairly
straightforward for a cash dividend now
for a stock dividend let's take a look
at scenario 2 so now they're going to
distribute in an independent scenario a
15 percent stock dividend so that's
considered a small stock dividend as you
see over here so you're going to
multiply the number of shares
outstanding
times the market price per share times
the stock dividend percentage to figure
out the amount of the dividend so let's
go ahead and do that first you're gonna
debit retained earnings for that amount
once again it's the shares outstanding
times the market price per share times
the dividend percentage so now it's 15%
so we'll start there fifteen percent
dividend market price we said was twenty
five bucks a share
right up here then you're gonna multiply
that times the shares outstanding and
that'll get your number there eighteen
thousand 750 now that's what you debit
for retained earnings here but you are
not gonna go ahead and credit that it's
gonna be something a little different
first you're gonna go ahead and credit
on the Declaration date once again so
this is the Declaration date then you
write this here you're gonna create it
what they call common stock
distributable so what you're saying
there is that I will issue those common
stock shares at some point it is
distributable not distributed not yet it
will be distributed in the future that's
what that means and that's actually
going to be an addition to your equity
notice we credited it here so it's
adding to your equity for the same
amount now though on the payment date or
the distribution date that's what they
call it it's a little bit different
you're going to go and debit common
stock distributable showing that you are
now distributed it and you're getting
rid of that distributable then you're
gonna credit common stock but you're
crediting it for
the par value like you're issuing stock
you always credit the common stock for
the par value always so the par value we
said was five dollars a share times five
thousand shares times 0.15 for the 15%
percentage so 37 50 there and what's
left well debits have to equal credits
so we're gonna credit additional paid-in
capital so that means the excess amount
of market over par some market
- par times the shares that's additional
paid-in capital so you would do 15% for
the dividend percentage times the number
of shares times 5,000 so let me try that
again
Oh point one five times five thousand
times 25 which is your market price we
got that number already but then we're
just gonna subtract out the thirty seven
fifty and that's what's left over which
is fifteen thousand dollars so that's
how you record the distribution of a
small stock dividend now moving down
here let's do a large stock dividend so
declaration of a large stock dividend
you can do the same thing you debit
retained earnings to show that you are
reducing your retained earnings for that
dividend and it's gonna be you know I'll
put my work up here so you can see it 15
percent times 5,000 shares times a $25
per share now I'll do the same thing
here 15% times but here it's gonna be
the par value so only five bucks a share
times 5,000 shares
3750 so you've seen that before up one
sec looks like we're supposed to do 50%
sorry I was using 15% let me reverse
that out here so I was using the 15%
from the small stock dividend since it's
a large stock dividend we should use the
50% is what they're indicating here so
let me redo that so 50% times 5 times
5,000 so it's actually 12,500
and you're gonna go ahead and credit the
same thing as you did before
common stock distributable showing that
you will distribute it at some point
then on the distribution date you will
debit the common stock distributable
showing that you're getting rid of it
because now have distributed to your
shareholders for that same amount and
since we're just using the power value
here you're gonna credit common stock so
you're not using the market value so
there will not be any type of additional
paid-in capital it's not included so
same idea 50% times the $5 per share
times the 5,000 shares and you get
12,500 that's it so that's the main
difference is there between the three
types of primary dividends that you'll
see cash dividend small stock dividend
and large stock dividend now those other
terms in there that I didn't go over too
much like par value market value shares
outstanding
later on we'll do another video on
equity which that goes into more equity
as far as shares outstanding treasury
shares that kind of thing this video is
mainly about dividends
hopefully that was helpful for y'all
today I know it's a lot of stuff so feel
free to go and rewind and fast-forward
through this video and once again my
name is Nathan I am a Chegg tutor on
check comm so you can find me here at
this link
I go by Nathan G feel free to message me
for some homework help one-on-one
tutoring or exam prep just send me a
message and I'd be happy to help you out
once again thanks for listening and I'll
see you in the next video