Detailed Answer
(d) Any dividend not based on earnings must be a
reduction of corporate paid-in capital and, to that extent, it is a
liquidating dividend. The following journal entries would be
made for this situation:
At date of declaration:
Additional paid-in capital 100,000
Dividends payable 100,000
At date of payment:
Dividends payable 100,000
Cash 100,000
Thus, a liquidating dividend would decrease Ole’s paid-in capital,
not its retained earnings.