Question

Oct. 20, 2016—Handy Harvey (NYSE: SWK) announced today that its board of directors approved a regulay fourth-quarter cash dividend of $0.58 per common share. This extends the company's record for the longest consecutive annual and exchange. The dividend is a payable on Tuesday, December 20 2016, to shareholders of record as of the close of business on Friday, December 2 2016. At the time of the press release, the company had 308 million shares authorized and 145.8 million outstanding. The par value for the company’s stock is $2.50 per share.
Required:
Prepare journal entries as appropriate for each of the three dates mentioned above and to close the dividends account.

Answer 1

Answer:

Journal Entries:

1) October 20, 2016:

Debit Retained Earnings with $84,564,000

Credit Dividend Payable with $84,564,000

Being $0.58 dividends payable on 145.8 million shares

2) December 2, 2016:

No journal entries are rquired.  The most important is the closure of the shares register to ensure that shareholders of record at this date are only those entitled to receive the dividend payment.

3) December 20, 2016:

Debit Dividends Payable with $84,564,000

Credit Cash with $84,564,000

Being cash payment of dividend.

Explanation:

The dividend declared on October 20, 2016 is payable to shareholders of the outstanding shares of 145.8 million, which represent the issued shares.  It is not calculated based on the number of authorized shares.

The company's stock par value of $2.50 is not a factor in calculating dividends.