Discuss the four types of dividends.
Discuss the four types of dividends. Which of the four is used most often, and why? What may happen to a company’s share price when dividends are announced or paid? Why do you think this is so?
Reply to at least two of your classmates. Be constructive and professional in your responses.
Student Response:
The four types of dividends are cash, stock, property and dividend. The cash dividend is by far the most common of the dividend types used. On the date of declaration, the board of directors resolves to pay a certain dividend amount in cash to those investors holding the company’s stock on a specific date. The date of record is the date on which dividends are assigned to the holders of the company’s stock. On the date of payment, the company issues dividend payments. A stock dividend is the issuance by a company of its common stock to its common shareholders without any consideration. If the company issues less than 25 percent of the total number of previously outstanding shares, then treat the transaction as a stock dividend. If the transaction is for a greater proportion of the previously outstanding shares, then treat the transaction as a stock split. To record a stock dividend, transfer from retained earnings to the capital stock and additional paid-in capital accounts an amount equal to the fair value of the additional shares issued. The fair value of the additional shares issued is based on their fair market value when the dividend is declared. A company may issue a non-monetary dividend to investors, rather than making a cash or stock payment. Record this distribution at the fair market value of the assets distributed. Since the fair market value is likely to vary somewhat from the book value of the assets, the company will likely record the variance as a gain or loss. This accounting rule can sometimes lead a business to deliberately issue property dividends in order to alter their taxable and/or reported income. When the board of directors wishes to return the capital originally contributed by shareholders as a dividend, it is called a liquidating dividend, and may be a precursor to shutting down the business. The accounting for a liquidating dividend is similar to the entries for a cash dividend, except that the funds are considered to come from the additional paid-in capital account.
Professor Response:
Are dividends guaranteed? If so, is what type? Is there a priority in payment?
Answer preview to discuss the four types of dividends.
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