Thirteenth Edition
Weygandt Kimmel Kieso
Chapter 14
Corporations: Dividends, Retained
Earnings, and Income Reporting
Prepared by
Coby Harmon
University of California, Santa Barbara
Westmont College
Chapter Outline
Learning Objectives
LO 1 Explain how to account for cash dividends, stock
dividends, and stock splits.
LO 2 Discuss how stockholders’ equity is reported and
analyzed.
LO 3 Describe the form and content of corporation
income statements.
Paid-in capital
Common stock $500,000
Common stock dividends distributable 50,000
In excess of par—common stock 25,000
Total paid-in capital $575,000
ILLUSTRATION 14.4
LO 1 Statement presentation Copyright ©2018 John Wiley & Son, Inc. 18
Entries for Stock Dividends
Illustration: Medland Corporation declares a 10% stock dividend on
its 50,000 shares of $10 par value common stock. The current fair
market value of its stock is $15 per share. Record the entry on the
declaration date:
Stock Dividends 75,000
Common Stock Dividends Distributable 50,000
Paid-in Capital in Excess of Par—Common Stock 25,000
Record the journal entry when Medland issues the dividend shares.
Common Stock Dividends Distributable 50,000
Common Stock 50,000
Before After
Dividend Change Dividend
Stockholders’ equity
Paid-in capital
Common stock, $10 par $500,000 $ 50,000 $550,000
Paid-in capital in excess of par— 25,000 25,000
Total paid-in capital 500,000 +75,000 575,000
Retained earnings 300,000 -75,000 225,000
Total stockholders’ equity $800,000 $ 0 $800,000
Outstanding shares 50,000 +5,000 55,000
Par value per share $10.00 $0 $10.00
Tektronix Inc.
Notes to the Financial Statements
Certain of the Company’s debt agreements require compliance with debt
covenants. Management believes that the Company is in compliance with such
requirements. The Company had unrestricted retained earnings of $223.8 million
after meeting those requirements.
Before issuing the report for the year ended December 31, 2020, you
discover a $50,000 error (net of tax) that caused the 2019 inventory to be
overstated (overstated inventory caused COGS to be lower and thus net
income to be higher in 2019. Would this discovery have any impact on
the reporting of the Statement of Retained Earnings for 2020?
Retained Earnings
1. Net loss 1. Net income
2. Prior period adjustment for 2. Prior period adjustment for
overstatement of net understatement of net
income income
3. Cash dividends and stock
dividends
4. Some disposals of treasury
stock
ILLUSTRATION 14.13
Weighted-Average
Net Income minus Earnings
÷ Common =
Preferred Dividends per Share
Shares Outstanding
Total Number of
Book Value
Stockholders’ ÷ Common Shares =
per Share
Equity Outstanding
$1,500,000 ÷ 50,000 = $30
Common Number of
Book Value
Stockholders’ ÷ Common Shares =
per Share
Equity Outstanding
$4,800,000 - $774,000 ÷ 390,000 = $10.32