dividend

(noun)

A pro rata payment of money by a company to its shareholders, usually made periodically (eg, quarterly or annually).

Related Terms

Examples of dividend in the following topics:

  • Dividends Payable

    • Dividends are payments made by a corporation to its shareholders; the payment amount is reported as dividends payable on the balance sheet.
    • Dividends are the portion of corporate profits paid out to shareholders.
    • A dividend is allocated as a fixed amount per share.
    • Therefore, a shareholder receives a dividend in proportion to the shares he owns -- for example, if shareholder Y owns 100 shares when company Z declares a dividend of USD 1.00 per share. then shareholder Y will receive a dividend of USD 100 for his shares.
    • Companies that declare dividends must record a liability for the amount of the dividends that will be paid to investors.

  • Closing the Cycle

    • Closing the Dividends account—transferring the balance of the Dividends account to the Retained Earnings Account
    • The Dividends account is also closed at the end of the accounting period.
    • It contains the dividends declared by the board of directors to the stockholders.
    • The dividends account is closed directly to the Retained Earnings account.
    • It is not closed to the Income Summary because dividends have no effect on income or loss for the period.

  • Reporting Fair Value

    • Assume XYZ Corporation declares a dividend of USD 1 per share.
    • ABC records a journal entry debiting Dividends Receivable for USD 50,000 and crediting Dividend Income for USD 50,000.
    • The Dividend Receivable is reported on the balance sheet under current assets and Dividend Income is reported on the income statement under a section for other income.
    • Assume XYZ Corporation declares a dividend of USD 1 per share.
    • ABC records a journal entry debiting Dividends Receivable for USD 50,000 and crediting Dividend Income for USD 50,000.

  • Income Statement Analyses

    • Earnings per Share = (Net Income - Preferred Dividends) / Shares of Stock Outstanding
    • Dividend Yield = (Dividends per Share / Market Value of Stock) x 100
    • The dividend yield or the dividend-price ratio of a share is the company's total annual dividend payments divided by its market capitalization, or the dividend per share, divided by the price per share.
    • Dividend yield is used to calculate the earnings on investment (shares) considering only the returns in the form of total dividends declared by the company during the year.

  • Reporting Equity Investments

    • The balance of the investment increases by the pro-rata share of the investee's income and decreases by the pro-rata share of dividends declared by the subsidiary.
    • At the end of 201X, XYZ earns net income of 100,000 and declares a dividend of USD 1 per share.
    • Journal entry to account for the pro-rata share of XYZ dividends:
    • DR - Dividends Receivable 80,000 (80,000 shares * USD 1 dividend per share)

  • Activities of the Business: Financing, Investing, and Operating

    • Non-operating cash flows include borrowings, the issuance or purchase of stock, asset sales, dividend payments, and other investment activity.
    • Investing activities include purchases or sales of an asset (assets can be land, building, equipment, marketable securities, etc.), loans made to suppliers or received from customers, payments related to mergers and acquisitions, and dividends received.
    • Financing activities include the inflow of cash from investors such as banks and shareholders, as well as the outflow of cash to shareholders as dividends as the company generates income.

  • Introduction to the Retained Earning Statement

    • Generally, retained earnings are the accumulated net income of the corporation (proprietorship or partnership) minus dividends distributed to stockholders.
    • Line items for the retained earnings statement typically include profits or losses from operations, dividends paid, issue or redemption of stock, and any other items charged or credited to retained earnings. .
    • Retained earnings are part of the balance sheet under Stockholders Equity (Shareholders Equity) and are mostly affected by net income earned by the company during a specified period, less any dividends paid to the company's owners/stockholders.
    • Ending Retained Earnings = Beginning Retained Earnings − Dividends Paid + Net Income.

  • Equity Method

    • The investor's proportional share of the associate company's net income increases the investment; a net loss, or proportional payment of dividends, decreases the investment.
    • An equity investment generally refers to the buying and holding of shares of stock by individuals and firms in anticipation of income from dividends and capital gains.
    • It is the ratio of the dividend yield of an equity and that of the long-term bond.

  • Assessing Fair Value

  • Special Reporting

    • Earnings per share are calculated as net income, with preferred dividends/weighted number of shares outstanding.
    • Line items typically include profits or losses from operations, dividends paid, the issue or redemption of stock, and any other items charged or credited to retained earnings.