Capital gain from liquidating dividends
At the date of declaration the bonds had a market value of $600,000. Date of Declaration Investments in Lie Dharma Company [Debit]. Gain on Appreciation of Bonds = 100,000 [$600,000 – $500,000] [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 $500,000. 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.
In fact, for a stock split no entry is required except a memorandum to notice the increase in the number of shares and the decrease in the par value.
A DRIP, or dividend reinvestment plan, is a method that allows you to use your dividends to purchase more of the same stock instead of receiving the dividends in cash.
Simply put, instead of receiving $3.24 in dividends, the company automatically purchases for you however many shares (or portions of a share) that $3.24 will buy.
This works to stop taxpayers subsidising hobbies from their investment earnings.
A capital gains tax (CGT) was introduced in Australia on 20 September 1985, one of a number of tax reforms by the Hawke/Keating government.
This nets you a little more stock each time, so that, ultimately, you end up with more shares than you started with.