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Journal entry to record liquidating dividend

When a company earns a profit, it has several options, one of which is to distribute some or all of the cash to the owners (the stockholders) by mailing checks out from the corporate treasury. skodonnell / Getty Images Have you ever wondered what it would be like to sit at home, reading by the pool, living off dividend checks that arrive regularly through the mail?This common dream can become a reality, but before you can even hope to achieve that level of financial independence, you must understand what dividends are, how companies pay dividends, and the different types of dividends that are available such as cash dividends, property dividends, stock dividends, and liquidating dividends, just to name a few.

It will walk you through the basics, ensuring that you have a solid foundation before diving into the more practical content in our Ultimate Guide to Dividends and Dividend Investing.It is a return of your investment in the stock of the company.If you buy stock in a corporation in different lots at different times, and you cannot definitely identify the shares subject to the nondividend distribution, reduce the basis of your earliest purchases first.By starting here, you'll learn to avoid tax traps such as buying dividend stocks between the ex-dividend date and the distribution date, effectively forcing you to pay other investors' income taxes!You'll also learn why some companies refuse to pay dividends while others pay substantially more, how to calculate dividend yield, and how to use dividend payout ratios to estimate the maximum sustainable growth rate.A nondividend distribution is a distribution that is not paid out of the earnings and profits of a corporation or a mutual fund.A Form 1099-DIV or other statement showing the nondividend distribution should be issued to the taxpayer.A cash dividend is money paid to stockholders, normally out of the corporation's current earnings or accumulated profits.All dividends must be declared by the board of directors, and they are taxable as income to the recipients.On Form 1099-DIV, a nondividend distribution will be shown in box 3 and generally is not taxable.If you do not receive such a statement, you report the distribution as an ordinary dividend. A nondividend distribution reduces the basis of your stock.

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