Stock Dividend and Derivative Financial Accounting
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1. How should a stock dividend that has been declared, but not yet issued be classified in a statement of financial position? Why?
2. Derivative accounting: What are the disclosure requirements for traditional and derivative financial instruments? Should companies disclose if such instruments are used for hedging or speculation? Why?
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Solution Summary
This solution explains how a stock dividend is declared that has not yet been issued, and also explains the proper way to classify the declared dividend in the statement of financial position (income statement). This solution also explains the disclosure requirements for traditional and derivative financial instruments. The proper disclosure for financial assets is also discussed, with a primary focus on hedging and speculation elements.
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#1 How should a stock dividend that has been declared but not yet issued be classified in a statement of financial position? Why?
A stock dividend that has been declared, but not yet paid is classified in the stockholders' equity section of the statement of financial position (balance sheet). Because dividend payments do not reduce assets, they are not considered liabilities. In order to become a liability, the event or transaction must be considered a reduction to assets. Even though the payments are made in cash (usually), the cash dividend payments are declared and paid after the company has declared its net income for the period. Dividends are not ...
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