Hi all, can anyone tell me why liquidating does not affect RE in Q1, but it does in Q2? Thank you.
Q1: A corporation declared a dividend, a portion of which was liquidating. How would this declaration affect each of the following?
Answer: APIC – Decrease, RE – Decrease
Q2: Ole Corp. declared and paid a liquidating dividend of $100,000. This distribution resulted in a decrease in Ole's:
Answer: PIC – Yes, RE – No
AUD - NINJA in Training BEC - NINJA in Training FAR - 85 REG - 81
Regular dividends reduce RE. Liquidating dividends are a return of capital, so they reduce APIC.
The key here is that Q1 is a portion liquidating (and presumably, a portion regular). Thus the liquidating portion reduced APIC while the regular portion reduces RE.
The Q2 dividends is just liquidating. Thus it only reduces APIC, and not RE.