HM company has 1,000,000 shares of $1 par value capital stock outstanding on January 1. The following equity transaction occurred during the current year.Apr. 30 Distributed additional shares of capital stock in a 2 for 1 stock splits. market price of stock was $35 per share.June 1 Declare a cash dividend of $ 0.60 cash dividendJuly 1 Paid the $0.60 cash dividend to stockholders.Aug. 1 Declared a 5 percent stock dividend. Market price of stock was $19 per shareSept. 10 Issued share resulting from the 5 percent stock dividend declared on August 1.Prepare journal entries to record these transactions.Compute the number of shares of capital stock outstanding at year-endWhat is par value per share of HM stock at the end of the yearDetermine the effect of each of the following on total stockholders’ equity: stock, equity split, declaration and payment of cash dividend, declaration and distribution of stock dividend (could be your answer increase decrease or no effect).

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Asked Aug 6, 2019
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HM company has 1,000,000 shares of $1 par value capital stock outstanding on January 1. The following equity transaction occurred during the current year.

Apr. 30 Distributed additional shares of capital stock in a 2 for 1 stock splits. market price of stock was $35 per share.

June 1 Declare a cash dividend of $ 0.60 cash dividend

July 1 Paid the $0.60 cash dividend to stockholders.

Aug. 1 Declared a 5 percent stock dividend. Market price of stock was $19 per share

Sept. 10 Issued share resulting from the 5 percent stock dividend declared on August 1.

  1. Prepare journal entries to record these transactions.
  2. Compute the number of shares of capital stock outstanding at year-end
  3. What is par value per share of HM stock at the end of the year
  4. Determine the effect of each of the following on total stockholders’ equity: stock, equity split, declaration and payment of cash dividend, declaration and distribution of stock dividend (could be your answer increase decrease or no effect).

 

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Expert Answer

Step 1

(1) Journal entries for the given transactions are as follows:

 

 

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Accounts title and explanation Debit (S) Credit (S) Date Memorandum entry: A 2-for-1 stock split increased the mimber of shares of common stock outstanding from 1,000,000 shares to 2,000,000 shares and reduced the par value from S1 to S0.50 per share. The 1,000,000 new shares were distributed. April 30 $1,200,000 Dividends Dividends payable |(To record the declaration of dividends) |($0.60 per share on 2,000,000 outstanding shares) June 1 $1,200,000 Dividend payable Cash |(To record the distribution of dividend) July 1 $1,200,000 |S1,200,000 |Retained earnings [(2,000,000 shares x 5%) x $19] $1,900,000 August 1 Stock dividend to be distributed $50,000 |[(2,000,000 shares x 5%) x $0.50] Additional paid in capital: stock dividends |(balancing amount) |(To record the declaration of stock dividend) $1,850,000 September 10 Stock dividend to be distributed $50,000 Common stock $50,000 |(To record the distribution of stock dividends)

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Step 2

(2) Compute the number of shares outstanding for Company HM at the end of the year:

 

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(Number of shares at January 1) + Number of shares distributed as Number of shares + outstanding stock split on April 30 Number of shares distributed as stock dividend on September 10 {(1000,000)+(1,000,000) (100,000)}shares 2,100,000 shares Therefore, the number of shares outstanding is 2.100,000 shares

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Step 3

(3) The par value of capital stock of Company HM at the end of the ye...

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