Liquidating dividend example
Cash Dividends Dividends and Its Journal Entrieshe date of payment Journal Entries For Cash Dividends Journal Entries for Liquidating Dividends Journal Entries for Stock Dividends Journal Entry for Property Dividends Journal Entry for Scrip Dividends Liquidating Dividends Property Dividends Scrip Dividends Stock Dividends The date of declaration The date of record The ex-dividend date Types of Dividends Types of Dividends and Its Journal Entries Are you looking for easy accounting tutorial?
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However, if the merger is for cash and stock, the target company's stockholders must recognize gain attributed to the transaction to the extent they received cash.
Their basis would be increased by the amount of gain they were taxed on.
At the date of declaration the bonds had a market value of 0,000. Date of Declaration Investments in Lie Dharma Company [Debit]. Gain on Appreciation of Bonds = 100,000 [0,000 – 0,000] [Debit]. In such case, firms may elect to declare a “”—by issuing promissory notes requiring them to pay the dividends at a later date. Cash = 2,500,000 A firm with adequate retained earnings but insufficient liquidity may elect to issue “stock dividends” by a pro rate distribution of additional shares of the firm’s own stock to its stockholders. Common Stock Dividend Distributable = 120,000 [Credit].
Cash = 2,000,000 Let’s assume that the PUTRA Corporation declares a property dividend, payable in bonds of Lie Dharma Company being held to maturity and costing 0,000. Investments in Lie Dharma Company Bonds = 600,000 Firms may find themselves with sufficient retained earnings to declare a dividend but not enough liquidity for distribution.
If you purchased the stock at different times, divide the dividends into short-term and long-term proportionally, based on when each block of stock was acquired.
A corporation issues these dividends if it plans to terminate its business or if it plans to merge with another corporation under a new name.
When you receive a liquidating dividend, the amount will be reported to you on a 1099-DIV form, in either box 8 or 9.
Only the amount that exceeds the taxpayer's basis in the stock is capital; this is taxed as a capital gain.
As a result, the tax code allows for tax free mergers, or reorganizations.
While there are many different types, the common thread is that in exchange for acquiring a target company's assets or stock, the acquiring company provides its stock, and sometimes cash and other property, to the target company's shareholders.
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Decrease in retained earnings follows the distribution of dividends. Let’s assume that the Lie Dharma Corporation, on March 15, 2009, declared a cash dividend of $1 per share on 2,000,000 shares payable June 1, 2009, to all stockholders of record April 15. At the date of distribution, the firm debits the note payable or scrip payable, and the related interest expense and credit cash. Notes Payable to Stockholders [Scrip Dividends Payable] = 3,000,000 [$1 x 3,000,000] 2. No corporate assets are distributed; the value of the total stockholder’s equity remains unchanged as well as each stockholder’s percentage ownership in the firm. Common Stock, $20 par = 120,000 Following the issuance the stockholder’s equity is as follows: Common Stock, $20 par [36,000 shares issued and outstanding] = $ 720,000 Additional Paid-in-Capital = 330,000 Total Stockholders’ Equity = $1,500,000 Let’s now assume that the firm issued instead a 50% stock dividend.