Problem
I. Your Boss, who never did figure out that you are the one who baked those "Delicious Chocolate Cakes" has come into your office and says "YOU have been doing an OUTSTANDING JOB here in the Accounting Department. I just got an email from the Big Stuff Corporate Headquarters. I can give one and only one employee who works for me the chance to buy Common Stock in Big Stuff at a special price. Since I am not allowed to give it to myself, I've decided to offer it to you. For $350, Big Stuff will issue 100 shares to you. I have to know right now if you want to do this, because I need to tell them who gets this deal by the end of today, and if you don't want it, I am going to offer it to another employee." Although you are a college student who is short of cash, you know that this is an opportunity that you don't want to pass. You immediately write a check, payable to Big Stuff, for $350. How is the Big Stuff Corporate Accounting department going to record this transaction when they receive your check?
Assets + Dividends + Expenses = Revenues + Contributed Capital + Liabilities
II. Twenty two days later, you read in the Wall Street Journal that the Board of Directors of Big Stuff has declared a dividend of 10 cents per share. You know that you own 100 shares, so you will be getting a check for $10 some day, hopefully soon. How would the Accounting Department at Corporate tell this story?
Assets + Dividends + Expenses = Revenues + Contributed Capital + Liabilities
III. Fifteen Days Later, you get a check in the mail from Big Stuff for $10. It looks different from your pay stub that comes after you get paid. On the stub of this check, it says Common Dividends, 100 Shares X $.10 per Share. You cash the check at FWB, and take the $10 out and buy a lot of snacks at Small Stuff. How do you think the folks at Big Stuff Corporate entered this transaction into their Accounting System?
Hint - Dividends Payable is a Liability just like Accounts Payable. How did you take care of that Accounts Payable when you pay the bills?
Assets + Dividends + Expenses = Revenues + Contributed Capital + Liabilities