Alright in this video we're gonna discuss some details about dividends. There's some important dates that we have to remember as well as some ideas about dividend preferences. Let's check it out. So let's start here with the important dates, there's going to be 33 important dates every time that we talk about dividends. Okay, up to this point, we've just just said that dividends were declared and paid on the same day. Well now we're gonna separate it into a more realistic situation. So the first thing that happens is that the company is gonna declare dividends, there's gonna be the declaration date. Okay? So it's not like they're gonna say hey we're gonna pay dividends and then they pay them immediately know they're gonna say hey we're gonna pay dividends and then at a later date they're gonna pay them. So the first entry here is going to be on the declaration date. This is the date that the public, the company publicly announces that there's gonna be dividends. So let's follow through an example on March 14th. The board of directors of the apartment depot announces a dividend of 300,000. Alright, so it's very important to remember that on the declaration Is where we make our journal entry for the dividends. So because we declared that we're going to pay dividends, we are now liable to pay dividends. So what we need to do is we're going to debit the dividends account at this point on March 14. The declaration date. We're going to debit dividends for the 300,000. We're gonna pay out and we're going to credit our dividends payable. So notice we've created a liability at this point, right? This payable dividends payable is a liability because we've told the public that we're gonna pay this dividend of 300,000. Now we are liable to the public to pay this dividend. Okay? So now we have to accrue this liability for these dividends that we declared. Okay because we're not just gonna be declaring dividends willy nilly now we have to declare them because we know that we're capable of paying them. So at this point on the declaration date we have to make a journal entry to reduce or to to reduce our equity by taking this dividends entry and increase our liabilities. So that's exactly what happens here. The dividends is a reduction of our equity, that's eventually going to reduce our net are retained earnings. Right? So that reduces our equity. But the dividends payable here dividends, I'm gonna put div payable that is an increase to our liabilities of 300,000. So we stay balanced here, write the equation stays balanced. Um And that's a very important entry. Okay, so you're you're gonna want to pay attention. There's gonna be the three dates here. The first one is the declaration date. And then why don't we pause here and we'll talk about the date of record in the next video

Alright so the next important date is the date of record and this basically says that whoever owns the stock as of the date of record will receive the dividend. Okay so the date of record is really just a point where the that says who's gonna get the dividend. Okay so look in the example on March 14 the board of directors of the apartment Debo announces a dividend of 300,000. That was the declaration date right from the previous journal entry. The directors also announced the record date would be april 4th. So these announcements usually go hand in hand but notice March 14th is the declaration date. But april 4th is the date of record because you can imagine people are gonna keep trading the stock every day. Right on the open market people are gonna be buying and selling the stock. So whoever owns the stock on april 4th is the person who's going to receive the dividend. Okay so whoever is holding the stock on april 4th receives the dividend but that doesn't mean that they're gonna receive the dividend on april 4th. There's gonna be another date that we're going to discuss. That's the payment date. So april 4th. The journal entry that gets made is no journal entry. There's no journal entry on the date of record on the date of record. It's just a memorandum that we know okay who's going to receive the stock, who's gonna receive the dividend is whoever is holding the stock as of april 4th. Okay so it's important to note, we've got three important dates. We've got the declaration date where we make a journal entry, the date of record. We don't make a journal entry and then the payment date. We are going to make a journal entry. So let's check that out in the next video.

Okay, so the final important date is the payment date. Let's check it out. The date that the actual cash dividend is paid. Right? That makes sense. The payment date is gonna be the date that the the cash dividend is paid. So notice what we have here on March 14, the board of directors of the apartment depot announces a dividend of 300,000. That was the declaration date. Right March 14. The directors also announced the record date would be April four. So whoever owns the stock as of April four is going to receive the dividend on April 11, the company pays the dividend. So here we have April 11 is the payment date right? The day that they paid the dividend? Not too complicated there. So what's the journal entry that the company has to make on the payment date? Well remember on the declaration date we had a liability right, we took dividends payable because we were liable to pay this dividend. Well now we've paid it off, we no longer have the liability. So on April 11 we're going to get rid Of the dividends. Payable liability with a debit right? Because it had a credit balance as a liability, we get rid of it with a debit. So we paid 300,000, we get rid of the 300,000 liability. And how did we pay for it? We paid for it with cash. Right, so we're going to reduce our cash with a credit. So the entry here is going to be dividends payable, debit Cash, credit for 300,000. Right? So what happens? We had our cash reduced by 300,000, which reduces our assets and we reduced our liabilities dividends payable by 300,000 and we stay balanced write our equation just stays balanced there. So these aren't too tricky. All you have to remember this is kind of a memorization thing of you're gonna have these three dates, you're gonna have the declaration date, record date and then payment date. Okay. So just remember the declaration date is where we have to make the liability for dividends payable. The record date. There's no journal entry. It's just to know who's going to receive the dividend and then the payment date we make the journal entry to get rid of the liability and pay out the cash. Cool. Alright, let's move on to the next topic.

So another important concept with dividends is dividend preferences. When we have two classes of stock. When we have common stock and preferred stock, we have to remember that the preferred stock always receives their dividends first. Okay. They always receive their dividends first. And why whatever is left over goes to the common stockholders. Okay, so let's check it out. In this example, the apartment depot currently has 5000 shares of $100 par value, 8% preferred stock. That's a lot of words there. Let's outline what we have for preferred stock here in blue And 100,000 shares of 50 cent par value. Common stock. So this is our common stock information right here in red. The apartment depot declares and pays a dividend of 220,000. So notice here we're just saying declares and pays a dividend. They usually try and separate questions of the declaration date, record date. And here we're just focused on how are we going to split the dividends between preferred and common? So they declare and pay a dividend of $220,000. What is the amount received by preferred shareholders and common shareholders? So the first thing we Wanna do is we want to find out how much the preferred shareholders are due. Right? They're gonna be do a certain amount of dividends based on their percentage there. They have a dividend percentage of 8% and that's going to be paid on their par value. So each share of stock, $100 is the par value of the preferred stock times the 8% 0.8. It comes out to $8 per share. Right? Each share of preferred stock will receive an $8 dividend. And we have to multiply that by the number of outstanding shares, right? They tell us there's 5000 shares outstanding. And this will tell us the total amount that should be received by the preferred stockholders and that's gonna come out 5000 times eight. Well that's just 40,000, right? 40,000 is the dividend for preferred, Right? And that just is us finding their their per share dividend of $8 per share and multiplying it by the number of shares. So no matter what, no matter how big the dividend is, the preferred shares are only gonna receive 40,000. We could have paid a million dollar dividend and the preferred shares would still get only 40,000. Okay, so the 1st 40,000 will always go to them. Now, what if the dividend had only been 30,000 instead of 220,000? The dividend had only been 30,000? Well then that whole 30,000 would have gone to the preferred because they're they're due the 1st 40,000 and it didn't reach 40,000. So everything would go to preferred. In this case, we have something greater than their preferred dividend. So the common stockholders will get something as well. Let's find out what the common stockholders get. And this is as easy as just subtracting the total dividend minus what the preferred shareholders get. So common stockholders Are going to receive the 220,000 everything minus what went to the preferred shareholders of 40,000. So they're going to receive 100 and 80,000 right? 180,000 goes to the common stockholders. It's as easy as that. So they could ask you this a couple different ways. They could say, how much is the total amount that goes to each of them? Or they could ask for a per share amount and you just have to divide. So let's fill this out at the bottom. The total preferred dividend Was 40,000, right? It was 40,000 total preferred dividend for all the preferred shareholders. And on a per share basis it was $8 per share. Right? That's what we saw when we did our calculation up here, we could also do 40,000 Total dividend divided by the 5000 shares. 5000 5000 shares, and it would equal $8 per share. Right, But we already knew that for the preferred. Now, what about the common? We see the total, I'm gonna get out of the way, we see the total dividend for the common is 100 and 80,000. Right? They got 100 and $80,000 but we don't know the per share yet. So we just have to take that 180,000 And divided by the number of common shares, which in this case was 100,000. So what does that come out? 280,000 divided by 100,000? No, it comes out to a dollar 80 per share. So each common share receives a dollar 80 in dividends. Okay. And this number could change, right? It would it would be different if the total dividend had been different, right? If instead of paying 220,000, we had paid 300,000 or paid 100,000. Right, this common dividend would change, but the preferred dividend, it will always be that percentage that they receive, right? They're going to receive their 8% On their part value. Okay. The only time the preferred wouldn't get their total $8, per share would be if we paid a dividend smaller than 40,000, but that would be pretty rare in a question like this. They would really be trying to trick you if they gave you a dividend smaller than the preferred uh required dividend there. Cool. All right. Why don't we pause here and then try some practice problems related to dividends?