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Sunday, March 08, 2015 7:36:14 AM
We have assets( INTERESTS INCLUDED ), that we own through LBHI and Corporations.
"A liquidating distribution (or liquidating dividend) is a type of nondividend distribution made by a corporation or a partnership to its shareholders during its partial or complete liquidation.[1] Liquidating distributions are not paid solely out of the profits of the corporation. Instead, the entire amount of shareholders' equity is distributed.[2] When a company has more liabilities than assets, equity is negative and no liquidating distribution is made at all. This is usually the case in bankruptcy liquidations. Creditors are always senior to shareholders in receiving the corporation's assets upon winding up. However, in case all debts to creditors have been fully satisfied, there is a surplus left to divide among equity-holders. This mainly occurs during voluntary liquidations of solvent corporations"
http://en.wikipedia.org/wiki/Liquidating_distribution
Liquidating Dividends
Dividends paid based on other than retained earnings are called “liquidating dividends”, as a return of contributed capital rather than a distribution of retained earnings. They are treated as a reduction of contributed capital, either additional paid-in-capital or a special contracontributed capital account, designated as “Contributed Capital Distributed” as a “Liquidating Dividend”.
Case Example
Let’s assume that the Lie Dharma Putra Company issued dividend to its common stockholders of $2,500,000 of which $1,000,000 is considered income and the rest a return of contributed capital. The following journal entries are required:
1. At the date of declaration
[Debit]. Retained Earnings = 1,000,000
[Debit]. Additional Paid-in-Capital = 1,500,000
[Credit]. Dividends Payable = 2,500,000
2. At the date of payment
[Debit]. Dividends Payable = 2,500,000
[Debit]. Cash = 2,500,000
I took that right out of the link you included. In my example I Assumed that the entire dividend declared was a liquidating dividend and in that the case the entire thing would have been debited out of additional paid in capital. In the example in the book, only a portion of the declared dividend is liquidating, which is why they have two debits (Retained earning and additional paid in capital)
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