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Capital gain from liquidating dividends

capital gain from liquidating dividends-58

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.

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We have made every effort to keep our website free of jargon, but realise that some expressions might need further explanation.With the exception of stock dividends, all the other dividends reduce the stockholder’s equity in the corporation. Cash = 3,075,000 Dividends paid based on other than retained earnings are called “liquidating dividends”, as a return of contributed capital rather than a distribution of retained earnings. Retained Earnings 50% [30,000 share x $20] = 300,000 [Credit]. Retained Earnings [Cash Dividend Declared] = 2,000,000 [Credit]. Date of record, April 15, 2009 Memorandum entry that the firm will pay a dividend to all stockholders of record as of today, the date of record. Retained Earnings [Property Dividend Declared] = $600,00 [Credit]. The accounting treatment at the date of declaration consists of debiting retained earnings or scrip dividends declared and crediting notes payable to stockholders or scrip dividend payable. Retained Earnings [Scrip Dividends Declared] = 3,000,000 [Credit]. The transaction is made by a capitalization of retained earnings resulting in a reduction of retained earnings and an increase in some contributed capital accounts. Additional Paid-in-Capital from Stock Dividend 30,000 2. Common Stock Dividend Distribution = 120,000 [Credit].We use cookies to give you the best possible online experience.If you continue, we'll assume you are happy for your web browser to receive all cookies from our website.Common Stock, $20 par = 300,000 Following the issuance the stockholder’s equity is as follows: Common Stock, [$20 par x 45,000] = $ 900,000 Additional Paid-in-Capital = 300,000 Total Stockholder’s Equity = 1,500,000 Note that the large stock dividend is treated as a stock split, that is, a split-up effected in the form of a dividend.

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.