Cash Dividend or Property Dividend: What Happens Before the Distribution?
Property dividends can require remeasurement before the distribution is recorded, while cash dividends usually do not.
Cash dividend
At declaration, retained earnings is reduced and a dividend payable is generally recorded for the amount to be paid in cash.
Property dividend
A noncash asset distributed to shareholders can require remeasurement to fair value before recording the dividend obligation under the applicable model.
Gain or loss
If carrying value differs from fair value, remeasurement of the distributed property can create a gain or loss before the asset leaves the books.
Payment date
Settlement removes the dividend payable and transfers cash or property to shareholders.
The takeaway
Cash dividends create a payable for cash. Property dividends can require the distributed asset to be adjusted to fair value before the dividend is recorded.
Related Summit guides
FAQ
Does a cash dividend normally create a liability at declaration?
Yes.
Can a property dividend create a gain or loss before distribution?
Yes.
Does every dividend affect retained earnings?
Generally yes when declared from retained earnings.