Retained Earning-2: Property and Liquidating Dividends

Property and Liquidating Dividends are another two items which are also included on the “Retained Earning” Accounts. On this post I am going to give some case examples with Journal/entries needed for each.

 What is Property Dividends?

Property Dividends

Sometimes a corporation may not wish to issue a dividend in cash because it needs the cash in the business. Instead, it may issue a dividend in the form of property (usually shares of stock it owns in other corporations).

According to APB Opinion No. 29, a journal entry must first be made to raise or lower the property on the books to its fair market value. Fair market value can be determined by reference to quoted market prices or by independent appraisals.


Property Dividends Case-1:

On June 1, A Company declares a property dividend to be paid from its portfolio of 5,000 shares of B Company stock. On its books, these shares were recorded at their cost of $10,000. However, today their fair market value is $11,000.


The journal entries are:

On the date of declaration (couple of entries):

[Debit]. Investments—Securities 1,000
[Credit]. Gain on Appreciation of Securities 1,000

[Debit]. Retained Earnings 11,000
[Credit]. Property Dividend Payable 11,000

On the date of payment

[Debit]. Property Dividend Payable 11,000
[Credit]. Investments—Securities 11,000


If the fair market value had been less than the book value, a loss, rather than a gain, would have been recognized. If a corporation wishes to pay a cash dividend but has no cash at the moment, it may issue a special type of note payable to the stockholders promising to pay later. This is called “scrip“. If the scrip pays interest, the interest portion of the payment should be debited to Interest Expense and not be treated as part of the dividend. The interest period runs from the date of record to the date of payment.


Property Dividends Case-2:

On January 1, a corporation declares a scrip dividend of $300,000 payable on June 1 to stockholders of record on April 1. The scrip pays interest at 10%.


The journal entries are:

On the date of declaration

[Debit]. Retained Earnings 300,000
[Credit]. Notes Payable to Stockholders 300,000

On the date of payment

[Debit]. Interest Expense 5,000
[Debit]. Notes Payable to Stockholders 300,000
[Credit]. Cash 305,000

The interest computation is: 300,000 × 0.10 × 2/12 = 5,000. The interest period is from the date of record to the date of payment—2 months.

Next is “Liquidating Dividends”………


Liquidating Dividends

As stated earlier, most dividends are paid out of retained earnings and are simply distributions to the stockholders of the corporate earnings. Sometimes, however, a dividend may be paid out of contributed capital instead. These dividends are called “liquidating dividends” and represent a reduction of the corporate paid-in capital. This information must be disclosed in the footnotes to the financial statements.

Liquidating Dividend Case Example:

If a corporation declares a dividend of $100,000, of which $70,000 is to be considered a liquidating dividend, the journal entry is:

[Debit]. Retained Earnings 30,000
[Debit]. Additional Paid-in Capital 70,000
[Credit]. Cash Dividends Payable 100,000

Author: Lie Dharma Putra

Putra is a CPA. His last position, in the corporate world, was a controller for a corporation in Costa Mesa, CA. After spending 15 years as a nine-to-five employee, he decided to serve more companies, families and even individuals, as a trusted business advisor. He blogs about accounting, finance and tax, during his spare time, and helps accounting students (around the globe) to understand the subject matter easier , faster. Follow him on twitter @LieDharmaPutra or add him to your circle at Google Plus Lie+

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