US CMA Part 1 &2 - DIVIDENDS: VERY IMPORTANT REVISION NOTES_Types, Accounting, JE, and FS Effects_
*1. TYPES OF DIVIDENDS*
**Type** **What it is** **CMA Key Point**
**1. Cash Dividend** Payment of cash to shareholders Most common. Reduces Cash + Retained Earnings
**2. Property Dividend** Distribution of assets other than cash Ex: Inventory, Investment. Recorded at FMV
**3. Stock Dividend** Distribution of additional shares instead of cash No assets leave company. Only reclassify Equity
**4. Scrip Dividend** Promise to pay cash dividend later Creates Dividend Payable liability
**5. Liquidating Dividend** Return of capital, not from earnings Reduces Paid-in Capital, not RE. Rare
*CMA Trick*: Only Cash, Property, Stock dividends are tested heavily
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*2. ACCOUNTING TREATMENT & JOURNAL ENTRIES*
*Important Dates:*
1. *Declaration Date*: Board declares dividend. Liability created
2. *Record Date*: Determine who gets dividend
3. *Payment Date*: Cash/assets actually paid
*A. CASH DIVIDEND*
*Example*: Declare $1 per share on 100,000 shares = $100,000
1. *Declaration Date*
`Dr. Retained Earnings 100,000`
`Cr. Dividends Payable 100,000`
_Effect: RE ↓, Current Liability ↑_
2. *Payment Date*
`Dr. Dividends Payable 100,000`
`Cr. Cash 100,000`
_Effect: Liability ↓, Assets ↓_
*B. PROPERTY DIVIDEND*
Recorded at *Fair Market Value* on declaration date.
Gain/Loss if FMV ≠ Book Value of asset
1. *Declaration Date*
`Dr. Retained Earnings [FMV]`
`Cr. Property Dividends Payable [FMV]`
2. *Payment Date*
`Dr. Property Dividends Payable [FMV]`
`Cr. Asset [Book Value]`
`Cr/Dr. Gain/Loss on Disposal [Diff]`
*C. STOCK DIVIDEND*
No assets leave. Just reclassify from RE to Paid-in Capital
*Small Stock Dividend < 25%*: Record at *Market Price*
*Large Stock Dividend > 25%*: Record at *Par Value*
*Example*: 10% stock dividend, 100,000 shares, $1 Par, $20 Market Price = 10,000 shares
1. *Declaration/Payment Date*
`Dr. Retained Earnings [10,000 × $20 = $200,000]`
`Cr. Common Stock [10,000 × $1 = $10,000]`
`Cr. APIC [200,000 - 10,000 = $190,000]`
_Effect: RE ↓, Stock + APIC ↑. Total Equity unchanged_
*Note*: No liability is created for stock dividend
*D. SCRIP DIVIDEND*
Like cash dividend but paid later with interest
1. *Declaration*
`Dr. Retained Earnings`
`Cr. Scrip Dividends Payable`
2. *At Payment*
`Dr. Scrip Dividends Payable`
`Dr. Interest Expense`
`Cr. Cash`
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*3. EFFECTS ON FINANCIAL STATEMENTS*
**Statement** **Cash Dividend** **Stock Dividend** **Property Dividend**
**Income Statement** No Effect No Effect Gain/Loss may be recorded
**Balance Sheet** Assets ↓ Cash
Equity ↓ RE
Liability ↑ then ↓ Assets = No Change
Equity: RE ↓, Stock ↑
Total Equity = No Change Assets ↓
Equity ↓ RE
Liability ↑ then ↓
**Statement of CF** Financing Outflow No Effect Investing Inflow + Financing Outflow
**EPS** No Effect Shares ↑ so EPS ↓ No Effect
*CMA Key*:
1. *Cash & Property dividend* = Decrease Total Equity
2. *Stock dividend* = No change in Total Equity. Only reclassification
3. *Stock dividend* increases shares outstanding → EPS decreases
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*4. 10 MUST-KNOW CMA EXAM POINTS*
1. *Retained Earnings* is reduced when dividend is *DECLARED*, not paid
2. *Stock Dividend < 25%* = Use Market Price. *> 25%* = Use Par Value
3. *Stock Split* ≠ Stock Dividend. Split changes par value and # of shares. No JE except memo
4. *Property Dividend* recorded at FMV. Recognize gain/loss
5. *Liquidating Dividend* reduces APIC, not RE. Means company returning capital
6. *Dividends Payable* is a Current Liability
7. *No JE on Record Date*
8. *Cash Dividend* = Financing Activity in Cash Flow Statement
9. *Stock Dividend* does not affect Cash or Total Equity
10. *Dividend reduces Book Value per share* for cash/property, but not for stock dividend
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*5. QUICK FORMULAS*
1. *Total Cash Dividend* = Dividend per share × Shares Outstanding
2. *Stock Dividend Shares* = Shares Outstanding × % Dividend
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[08/07, 10:01 am] Meta AI: *US CMA Part 2 - DIVIDENDS: 20 MCQs + Answers*
_Topics: Types, JE, FS Effects, Stock vs Cash Dividend_
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*SECTION A: 20 MCQs*
*1. Which dividend creates a liability on the declaration date?*
A. Stock Dividend
B. Stock Split
C. Cash Dividend
D. Liquidating Dividend from APIC
*Ans: C* - Cash and Property dividends create Dividend Payable
*2. A 10% stock dividend is declared when market price is $30 and par is $2. For 50,000 shares outstanding, the JE will debit Retained Earnings for:*
A. $10,000
B. $100,000
C. $150,000
D. $300,000
*Ans: C* - Small stock div <25% = Market Price. 50,000 × 10% × $30 = $150,000
*3. The effect of a cash dividend on the balance sheet at declaration is:*
A. Assets ↓, Equity ↓
B. Assets =, Liabilities ↑, Equity ↓
C. Assets ↑, Equity ↑
D. No effect
*Ans: B* - Dr RE, Cr Dividends Payable
*4. Which statement is TRUE about a large stock dividend >25%?*
A. Recorded at Market Price
B. Recorded at Par Value
C. Creates a liability
D. Reduces Total Assets
*Ans: B* - Large stock div uses Par Value, not market
*5. A property dividend is recorded at:*
A. Book Value of asset
B. Fair Market Value of asset
C. Lower of Cost or Market
D. Zero
*Ans: B* - And gain/loss is recognized if FMV ≠ BV
*6. Which dividend does NOT affect total stockholders’ equity?*
A. Cash Dividend
B. Property Dividend
C. Stock Dividend
D. Scrip Dividend
*Ans: C* - Stock dividend just reclassifies RE to PIC. Total Equity unchanged
*7. On payment date of a cash dividend, the entry is:*
A. Dr. Retained Earnings Cr. Cash
B. Dr. Dividends Payable Cr. Cash
C. Dr. Cash Cr. Dividends Payable
D. No entry
*Ans: B* - Liability is settled
*8. A liquidating dividend is a return of:*
A. Retained Earnings
B. Paid-in Capital
C. Cash only
D. Assets
*Ans: B* - Not from earnings. Reduces APIC
*9. Which of the following has NO effect on the Income Statement?*
A. Cash Dividend
B. Property Dividend with gain
C. Stock Dividend
D. Both A and C
*Ans: D* - Dividends are not expenses. Only property div may have gain/loss
*10. A company declares a 20% stock dividend. 100,000 shares @ $1 par are outstanding. Market price $25. The credit to Common Stock will be:*
A. $20,000
B. $100,000
C. $500,000
D. $400,000
*Ans: A* - 100,000 × 20% × $1 Par = $20,000. 20% is "large" so use par
*11. The record date is important to determine:*
A. When liability is recorded
B. Who receives the dividend
C. When cash is paid
D. EPS calculation
*Ans: B* - No journal entry on record date
*12. Cash dividend is reported in which section of Cash Flow Statement?*
A. Operating
B. Investing
C. Financing
D. Non-cash
*Ans: C* - Financing Outflow
*13. After a stock dividend, EPS will:*
A. Increase
B. Decrease
C. No Change
D. Cannot determine
*Ans: B* - Shares outstanding increase, Net Income same → EPS ↓
*14. Scrip dividend is similar to:*
A. Stock Dividend
B. Cash Dividend with delayed payment
C. Liquidating Dividend
D. Stock Split
*Ans: B* - Promise to pay cash later + interest
*15. The main difference between stock dividend and stock split is:*
A. Stock dividend changes total equity, split does not
B. Stock split changes par value per share, stock dividend does not
C. Both affect retained earnings
D. Both create liability
*Ans: B* - Split = memo entry only. Par changes
*16. Which account is credited when a small stock dividend is declared?*
A. Dividends Payable
B. Common Stock and APIC
C. Cash
D. Investment
*Ans: B* - Dr RE, Cr Common Stock + APIC
*17. A company has $500,000 RE. It declares $100,000 cash dividend. After declaration RE = ?*
A. $600,000
B. $500,000
C. $400,000
D. $100,000
*Ans: C* - $500,000 - $100,000 = $400,000
*18. Gain on property dividend is calculated as:*
A. FMV - Book Value
B. Book Value - FMV
C. Cash Received - BV
D. No gain is recorded
*Ans: A*
*19. Which dividend reduces both current assets and current liabilities?*
A. Stock Dividend
B. Cash Dividend at payment date
C. Property Dividend
D. Stock Split
*Ans: B* - Dr Div Payable ↓CL, Cr Cash ↓CA
*20. The purpose of a stock dividend is to:*
A. Conserve cash
B. Increase total equity
C. Reduce liabilities
D. Increase net income
*Ans: A* - Distribute shares instead of cash
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*ANSWER KEY SUMMARY*
1-C, 2-C, 3-B, 4-B, 5-B, 6-C, 7-B, 8-B, 9-D, 10-A
11-B, 12-C, 13-B, 14-B, 15-B, 16-B, 17-C, 18-A, 19-B, 20-A
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*LAST MINUTE EXAM TRICKS*
1. *Declaration* = Dr RE | *Payment* = Cr Asset
2. *Small Div <25%* = Market Price | *Large Div >25%* = Par Value
3. *Stock Div* = No Cash, No Liability, No change in Total Equity
4. *Property Div* = Record at FMV, recognize gain/loss
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