Promotion expense 25,000.00 Wm. Lane 25,000.00 Fee due Wm. Lane for promotion of company and sale of stock. -------- Wm. Lane 25,000.00 Subscriptions 25,000.00 Amount due to Lane credited to subscriptions to pay for stock subscribed by him. The entries for the shares issued to Davis and those sold are the same as previously explained and illustrated. SURPLUS AND DIVIDENDS =33.= The directors are under no obligation to distribute in dividends the profits earned in any one year. Instead, the by-laws usually provide that the decision as to when a dividend shall be declared is to be left entirely to the directors. They have it in their power to retain of the profits such an amount as, in their judgment, is advisable or necessary to safeguard the interests of the company. At the close of the fiscal year it is customary to close profit and loss account, and in a corporation it is closed into surplus. =34. Surplus Sub-divided.= Sometimes the term surplus is used to designate a part of the profits set aside for a special purpose, as the creation of a fund to meet an obligation falling due at some future date. When surplus is treated as a special fund, or when it has been provided by resolution of the directors "_that a certain sum, or a certain per cent of the profits shall be set aside as a surplus fund_," and remaining profits not distributed as dividends may be placed to the credit of an account called _Undivided Profits_ or _Undistributed Profits_. In reality undivided profits is surplus, and the division of the account merely serves to show that the amount credited to surplus is for some reason reserved, while the amount credited to undivided profits is available for dividends whenever the directors may so elect. Whether or not the surplus should be shown in the balance sheet under these various headings, or all under the general head of surplus, with explanatory notes, is a question which need not concern us at this point. =35. Declaring a Cash Dividend.= When a dividend is declared an account should be opened under the caption _Dividends Payable_ or _Dividend No. 1._, etc. We will suppose that a dividend has been declared out of the profits of the business for the current year. The entry is:-- Profit and Loss Dividends payable Dividend of----% declared by the board of directors --------1909, payable--------1909. When the dividend is paid the entry will be-- Dividends payable Cash To pay dividend payable --------1909.