Retained Earning is accumulated profits/losses (from date of incorporation to current

reporting period) minus total dividends declared

Profits kept are Retained Earnings

Profits may be payed as dividends or kept to fund business activities Income Summary account closed to Retained Earnings account

Debit balance of income summary is called deficit

Justified by corporation projects approved by BOD; or

Corporations cannot keep profit surplus greater than 100% of paid capital Except if Corporators prohibit dividend declaration without their consent; or
Introduction
Retention is clearly necessary for special circumstances
Sec. 42, Revised Corporation Code of PH BOD may declare dividends from unrestricted retained earnings payable in cash,
scrip, property, or stock

Cash dividends on delinquent shares shall first be applied to denlinquent balance

No-par shares entitled to dividends only upon full payment

Unappropriated/Unrestricted/Free available for dividends; REs without classification are unrestricted

Retained Earnings can be classified as
Appropriated/Restricted not available for dividends; restricted by BOD for specific purpose

Legal Restrictions (law says so)

Contractual Restrictions (contract says so)

Reasons to Appropriate
Existence of Possible Restricted Loss (preparation for unfavorable events)

Voluntary Restrictions (BOD projects says so)

Retained Earnings
Retained Earnings (General) Prior Period Error Adjustments

Effect of Change in Accounting Policy

Statement of RE contains Net Income/Loss for Period

Dividends

Current Period Appropriations of REs

can be cash, scrips, shares, or property

Dividends are corporation profits distributed to shareholders
generally decreases shareholder's equity (except for stock dividends)

Dividend rates are fixed by BOD

Law provides

Shareholder has terms for dividend distribution, and it cannot be met

Dividends may not be paid when Right to receive dividends is disputed

Nature of Dividends
Dividends lawfully adjusted against dues of shareholder(s)
Corporation defaults

Date of Declaration dividends authorized by BOD; entry required

Date of Record qualified recepients determined

Essential Dates
Ex-Dividend Date shares bought on/before ex-dividend date not entitled to dividend declared with date

Date of Payment dividend declaration payed; entry required

 Corporation must have enough Retained Earnings to declare cash dividends

Cash Dividends No-par shares issues only on full payment

All issued, fully paid, and subscribed par value shares are entitled to dividends

Scrip Dividends Issue promisory notes to pay at a later date

Non-cash asset dividends

Property Dividends
Recorded at fair value of asset given up

Types of Dividends Corporation's own stocks issues as dividends

Total shareholders' equity remain unchanged

Stock Dividends Book value of shares changed; par/stated value of shares remain

Less than 20%, Small Share Dividends recorded at fair market value
Retained Earnings Additional Shares Issued are
20% or more, Large Share Dividends recorded at total par/stated value

Return of Contributed Capital

Liquidating Dividends
Trust Fund Doctrine: capital only returned to owners on dissolution and liquidation

Cumulative PS entitled to undeclared dividends (called dividends in arrears) yearly

Participating PS entitled to receive dividends in excess of fixed rates

Convertible PS owners can convert shares into other securities from corporation (e.g OS, bonds)
Dividend Rights to Preference Shares
Callable PS can be called and cancelled by corporation at call price (with undeclared dividends)

Redeemable PS shareholder may redeem payment at will