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This would only be true if dividends were declared and paid simultaneously.rayankh wrote:Being subtracted from R/E, yes, but they have a different effect on the financial statements.
Dividends declared = liabilities go up, retained earnings go down
Dividends paid = assets go down, retained earnings go down
This is the way it works in real life, and this is the way it’ll work on the exam (unless they explicitly say that they’re declared and paid simultaneously).inCLYNEd.Honoka wrote:So, if it’s dividends declared followed by dividends paid some time later (which I guess is what would happen), it’ll be
Dividends declared: L goes up, RE goes down
Then Dividends paid: L goes down, A goes down?
Good. I just wanted it to be clear. (Just because you haven’t yet seen a question … .)rayankh wrote:I mean to say that would be the net affect, because I have yet to receive a question about the accounting treatment of those two events. They merely present a balance sheet and say dividends were declared, calculate X. Or dividends were paid, calculate X.
But yes, I am aware one step follows the other!
As always, your help is appreciated immensly. I wish I had you on speed dial and could just be like S2000magician, can you explain this for me?S2000magician wrote:
Good. I just wanted it to be clear. (Just because you haven’t yet seen a question … .)rayankh wrote:I mean to say that would be the net affect, because I have yet to receive a question about the accounting treatment of those two events. They merely present a balance sheet and say dividends were declared, calculate X. Or dividends were paid, calculate X.
But yes, I am aware one step follows the other!
I’m working on that.rayankh wrote:
As always, your help is appreciated immensly. I wish I had you on speed dial and could just be like S2000magician, can you explain this for me?S2000magician wrote:
Good. I just wanted it to be clear. (Just because you haven’t yet seen a question … .)rayankh wrote:I mean to say that would be the net affect, because I have yet to receive a question about the accounting treatment of those two events. They merely present a balance sheet and say dividends were declared, calculate X. Or dividends were paid, calculate X.
But yes, I am aware one step follows the other!
If it’s only paid then it doesn’t affect retained earnings.Jaishank wrote:Clear with dividend declared. But if only dividend paid is mentioned along with an income statement, then do we substract it to get retained earnings or leave it as it is?
If they subtract dividends paid (not dividends declared) from retained earnings (and shareholders’ equity), they err.TheGreatBambino wrote:S2000Magician,
In the CFAI mock material is subtracts Dividend paid in calculation of Ending Shareholders Equity.
The Elan example I have does not. subtract dividends paid, only declared.
Any thoughts? I can post questions if necessary….