[LPL]

I have one case for our members to fix out in term of the dividend

We have two respective companies (Com A and Com B)

Com A declared and paid dividend to Com B, minority shareholder, with the amount of $60,000 in cash. The Com B paid 85% of the dividend income to its shareholders.

Note: No any retained earning exists in the account as it is a new Company.

Which one is the rignt transaction? Or another is needed


Option 1: my own records

(Dr) Cash on hand------ 60,000
(Cr) Dividend income from Com A ----- $60,000

(Dr) Dividend (Balance Sheet item)----- $ 60,000*0.85
(Cr) Cash on hand---------------------------60,000*0.85

Option 2: my friend recommends

(Dr) Cash on hand------ 60,000
(Cr) Dividend income from Com A ----- $60,000

(Dr) Dividend expense(P&L item)----- $ 60,000*0.85
(Cr) Cash on hand---------------------------60,000*0.85

[Criado]

I think yours is better.

Dividend is a reduction to retained earnings. Dividend Expense is not the proper account to use when a company declared dividend.

Dividend account and Dividend Expense account are two different things.

[morgaine300]

It still comes out of retained earnings. You didn't say which balance sheet account. The retained earnings has to have some kind of balance in it if it's year-end, whether positive or negative, unless you hit the 1 in 3 trillion possibility of actually breaking even to the penny. If retained earnings goes negative, so be it, and it's now a deficit. Curious though, why you're paying $60,000 in dividends when you have no income.

If you prefer not messing with retained earnings until year-end, you can easily use a contra account called Cash Dividends, which is a debit balance equity account, and it sits in there until year-end. Part of the year-end closing would be to remove it from that account and then remove it from retained earnings. Cash Dividends is an account that offsets retained earnings.