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Liquidating dividend belongs in a dated, class-level equity analysis. A liquidating dividend is the supported return-of-capital portion of an owner distribution. Separate it from the portion distributed from accumulated earnings and identify the affected contributed-capital account and share class.
Apply it
If a $300,000 distribution is supported as $220,000 from retained earnings and $80,000 as a capital return, the workpaper reduces those sources separately. Calling all $300,000 a dividend does not explain the capital effect.
Review liquidating dividend against cash dividend. Reconcile liquidating dividend to additional paid in capital, the dated liquidating dividend evidence, and its final presentation.
The liquidating dividend record ties cash dividend to its source date, measured amount, and additional paid in capital effect.
Keep the boundary clear
Low retained earnings does not prove that the remainder is legally or economically liquidating. The conclusion depends on governing law, corporate action, instrument terms, and the transaction's facts.
Authority
Read ASC 505-10-50-3 for disclosure of dividend and liquidation rights.
Put the concept to work
Apply this concept
- Explain and apply liquidating dividend within a reconciled class-level equity workpaper using supplied authoritative facts.
Learning resources
Choose a lesson, try an application, or inspect the sources behind this concept.
Build on these ideas
- Cash dividend — Apply
To apply this concept: Required. This prior idea supplies the quantities or classification needed for the current analysis.