Question
Penrose Foods has in issue 50,000 6% preference shares of $10 each and 200,000 ordinary shares.
- Dec 1, 2026 — the directors declare the full year’s preference dividend and an ordinary dividend of $0.40 per share.
- Dec 15, 2026 — date of record: shareholders on the register today will receive the dividend.
- Jan 15, 2027 — the dividends are paid.
Required:
- Total Dividend — the total dividend declared on December 1.
- Journal Entries — record whatever each date requires. Use Retained Earnings, Dividends Payable and Cash.
- Effect of the Declaration — the effect of the December 1 entry on the financial statements.
Statements in this challenge
- Total DividendNumeric Answer
- Journal EntriesJournal Entry
- Effect of the DeclarationStatement Impact
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 10 and IAS 32 — events after the reporting period; equity distributions
A dividend becomes a liability only when it is declared, which is what separates the declaration entry from the payment entry. A dividend declared after the reporting date is not recognised as a liability at that date.
Common mistakes
- Recognising a proposed dividend as a liability before it has been declared.
- Treating a dividend as an expense in profit or loss rather than a distribution of retained earnings.
- Recording a share dividend as though it reduced net assets, when it only moves amounts within equity.
Further readingIAS 10: events after the reporting period