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14.3 Record Transactions and the Effects on Financial Statements for Cash Dividends, Property Dividends, Stock Dividends, and Stock Splits

Cash Dividends​

Cash Dividends:

  • Distribution of cash to shareholders
  • Reduce retained earnings
  • Create liability when declared

Declaration:

104000 Retained Earnings          €5,000
470000 Dividends Payable                      €5,000
To declare cash dividend

Payment:

470000 Dividends Payable          €5,000
510000 Cash                                   €5,000
To pay cash dividend

Stock Dividends​

Stock Dividends:

  • Distribution of additional shares
  • No cash paid
  • Reduces retained earnings
  • Increases share capital

Example:

  • 10% stock dividend on 10,000 shares
  • Issue 1,000 new shares

Journal Entry:

104000 Retained Earnings          €[amount]
101000 Share Capital                           €[amount]
To record stock dividend

Stock Splits​

Stock Splits:

  • Increase number of shares
  • Decrease par value proportionally
  • No journal entry (just memo)
  • No change in total equity

Example:

  • 2-for-1 stock split
  • 10,000 shares @ €10 par → 20,000 shares @ €5 par
  • No journal entry needed

Luxembourg Compliance Note​

Dividends in Luxembourg:

  • Must comply with corporate law
  • Must have sufficient retained earnings
  • Must follow distribution rules
  • Must use proper PCN accounts
  • Tax implications apply

Think It Through​

What is the difference between cash dividends and stock dividends? How does each affect the financial statements?