Question

On the 15 March X6 Company X decides to make effective the following profit distribution corresponding to the X5 profit which was €860,000.

• Compensation for losses from previous years of €320,000.
• Legal reserve to comply with the Spanish legal requirement.
• Statutory reserves of €72,000.
• Dividend of €0.3 per share that will be made effective (paid) on the 15 April.
• The rest will be classified as voluntary reserves.
• The equity of Company X at that date includes: share capital of €1,200,000 (120,000 shares of €10 par value each), legal reserve of €200,000, and a voluntary reserve of €80,000.
• We also know that on the 15 November X5 and due to the promising performance of the company during the year, a dividend was distributed and paid of €0.2 per share.
• Dividend withholding tax is 21%.
• Required:
• Can you record the entry corresponding to the profit distribution on the 15 March and the entry corresponding to the dividend payment on the 15 April?
  

Answer 1

March

Dr retained earnings 36,000

Cr dividend payable 28,440

Cr withholding tax. 7,560

April

Dr Dividend expense. 28,440

Dr withholding tax. 7,560

Cr Cash/bank 36,000

Calculation:

$Dividend payable=36,000-7560=28,440$

$Tax= .21\times36,000=7,560$

$Spain legal= 860,000\times.1=86,000$

$Dividend=.3\times120,000=36,000$