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Accounting for cash dividends, dividends in arrears & treasury stock paid as a dividend & the restriction required on retained earnings for the cost of the treasury stock, dividends can only be paid providing there sufficient cash and retained earnings to pay the dividends, a portion of retained earnings is set aside to cover the cost of treasury stock held by the company, retained earnings available for dividends is reduced by the cost of treasury stock being held by the company, Restriction on R/E is an amount put in reserve for working capital, debt obligations, T/S legal requirements, etc., the reserve set aside must be detailed in the financial statements, example is for 1-Dividend in arrears 1) yr is paid by issuing T/S (1,500 shrs), 2-Current year dividends paid: P/S 6% dividend, C/S $.60/shr, 3-Current market price: P/S ($160/shr), C/S ($24/shr), 4-Net income for current year is estimated at $154,000, 1st determine number of shares C/S outstanding after T/S issued as dividend to determine the cash dividend payment on common stock, based on the example can determine if there is enough cash and retained earnings to meet the dividend requirements, detailed accounting by Allen Mursau
