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Dividends are distributions to owners or stockholders. They may be paid in cash, stock, or as dividends in kind.
Cash dividends declared are generally reported as a deduction from retained earnings. As depicted in Figure FSP 5-1, dividends declared or paid are normally presented in the statement of stockholders' equity at the amount per share, and in total for each class of shares as required by S-X 3-04. In the absence of retained earnings, cash dividends should generally be charged to APIC. This treatment is supported by analogy to SAB Topic 3-C (codified in ASC 480-10-S99-2, which requires accretion of redeemable preferred stock to be charged to APIC in the absence of retained earnings.
A parent company may declare a dividend from other than its accumulated earnings (e.g., from APIC, unrecorded increases in value of the company, or retained earnings resulting from parent's equity in undistributed earnings of a subsidiary). Laws in many jurisdictions have restrictions on declaring dividends from other than a reporting entity's accumulated profits. Accordingly, whenever dividends are declared from other than a parent company's retained earnings, the reporting entity should consider obtaining an opinion of counsel as to the legality of the declaration. A reporting entity may also wish to record a dividend as an addition to accumulated deficit. The legal character of a dividend as a charge to accumulated deficit instead of APIC may be followed for accounting purposes when the dividend is not a legal return of capital.

5.11.2 Unpaid dividends

Reporting entities often declare dividends on common stock before the balance sheet date, and then pay the dividends after the balance sheet date. Unpaid declared dividends other than stock dividends should be presented as current liabilities. However, if the dividend is payable in kind from noncurrent assets, the reporting entity should present it as a noncurrent liability.

5.11.3 Liquidating dividends

A distribution that represents a return of capital is a liquidating dividend. When a reporting entity pays such a dividend, usually on partial or complete dissolution, it should advise the shareholders and disclose the facts in the financial statements. The reporting entity may deduct "liquidating dividends" or "capital repayment" from APIC in the balance sheet or show only the balance of capital after partial liquidation.
Figure FSP 5-5 is an example of a footnote to disclose liquidating dividends.
Figure FSP 5-5
Sample disclosure for a liquidating dividend — deducting from capital balance
Note X — Cash dividends paid during the year 20X7 equaled $1.00 per share on the $3.00 par value common stock, of which $0.30 represented a liquidating dividend paid from APIC.

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