A traditional dividend is recorded by debiting retained earnings and crediting cash for the amount paid to the shareholders.
A company that declares a liquidating dividend doesn’t have enough retained earnings to declare a regular dividend.
”“A company’s balance sheet does not convey exact information as to its value in liquidation, but it does supply clues or hints which may prove useful.
The first rule in calculating liquidating value is that the liabilities are real but the assets are of questionable value.
Or else he will be partial to such as reveal other attractive statistical features besides their liquid-asset position, satisfactory current earnings and dividends, or a high average earning power in the past.
The analyst will avoid issues which have been losing their quick assets at a rapid rate and show no definite signs of ceasing to do so.”, titled, Inflated Treasuries and Deflated Stockholders, Should Rich Corporations Return Stockholders’ Cash?
This is the amount of money the company has earned in addition to the original amount of money the shareholders invested to start the business.Definition: A liquidating cash dividend is a distribution to that returns some of the original investment to the owners.In other words, a liquidating cash distribution gives some of the investors’ investment back to them.In this case, the contributed capital account is debited on the date of declaration.Many states have laws that restrict liquidating dividends in order to protect creditors.
Perhaps the corporation itself buys back the shares they throw on the market, and by a final touch of irony, we see the stockholders’ pitifully inadequate payment made to them could actually be purchased for 50 cents, plenty of publicity and plenty of buying power would quickly be marshaled to take advantage of the bargain.