Question
Summit Retail Group has 40,000 shares of common stock outstanding.
| Date | Event |
|---|
| November 1 | Declared a cash dividend of $0.50 per share. |
| November 15 | Date of record. |
| December 1 | Paid the cash dividend. |
Required: Prepare the journal entries for the declaration (November 1) and the payment (December 1). No entry is made on the date of record. Use a Dividends account on declaration.
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