Cornerstones of Financial Accounting
Cornerstones of Financial Accounting
4th Edition
ISBN: 9781337690881
Author: Jay Rich, Jeff Jones
Publisher: Cengage Learning
bartleby

Videos

Textbook Question
Chapter 10, Problem 85PSB

Common Dividends

Thompson Payroll Service began in 2019 with 1,500,000 authorized and 820,000 issued and outstanding S8 par common shares. During 2019, Thompson entered into the following transactions:

  1. Declared a S0.20 per-share cash dividend on March 24.
  2. Paid the S0.20 per-share dividend on April 6.
  3. Repurchased 13,000 common shares for the treasury at a cost of S12 each on May 9.
  4. Sold 2,500 unissued common shares for $15 per share on June 19.
  5. Declared a $0.40 per-share cash dividend on August 1.
  6. Paid the $0.40 per-share dividend on September 14.
  7. Declared and paid a 10% stock dividend on October 25 when the market price of the common stock was $15 per share.
  8. Declared a 50.45 per-share cash dividend on November 20.
  9. Paid the $0.45 per-share dividend on December 20.

Required:

  1. Prepare journal entries for each of these transactions. (Note: Round to the nearest dollar.)
  2. What is the total dollar amount of dividends (cash and stock) for the year?
  3. CONCEPTUAL CONNECTION Determine the effect on total assets and total stockholders’ equity of these dividend transactions.
Expert Solution
Check Mark
To determine

(a)

Introduction:

Dividend is the amount that is paid to the stockholders’ periodically as a return on their investment in the company. Dividend can be made in two forms i.e. Cash Dividend and Stock Dividend.

To prepare:

Journal Entries for the given transactions.

Answer to Problem 85PSB

Journal Entries

S. No. Date Particulars Debit ($) Credit ($)
a. March 24 Retained Earnings Dr.
Dividends Payable
164,000 164,000
b. April 6 Dividends Payable Dr.
Cash
164,000 164,000
c. May 9 Treasury Stock Dr.
Cash
156,000 156,000
d. June 19 Cash Dr.
Common Stock
Additional Paid-in Capital
37,500 20,000
17,500
e. August 1 Retained Earnings Dr.
Dividends Payable
323,800 323,800
f. September 14 Dividends Payable Dr.
Cash
323,800 323,800
g. October 25 Retained Earnings Dr.
Common Stock
Additional Paid-in Capital
1,214,250 647,600
566,650
h. November 20 Retained Earnings Dr.
Dividends Payable
400,703 400,703
(i) December 20 Dividends Payable Dr.
Cash
400,703 400,703

Explanation of Solution

Given:

1,500,000 shares were authorized and 820,000 were issued and outstanding $8 par common shares.

(a) No. of shares issued and outstanding = 820,000

Cash Dividend per share = $0.20

Total cash dividend = No. of shares issued and outstanding × Cash Dividend per share

Total cash dividend = 820,000 × $0.20

Total cash dividend = $164,000

(c) No. of shares repurchased = 13,000

Value of repurchase = $12 per share

Total Value of repurchase of shares = No. of shares repurchased ×Value of repurchase

Total Value of repurchase of shares = 13,000 × $12

Total Value of repurchase of shares = $156,000

(d) No. of shares issued = 2,500

Market value of shares issued = $15

Par Value = $8

Total Market value of shares issued = No. of shares issued × Market value of shares issued

Total Market value of shares issued = 2,500 × $15

Total Market value of shares issued = $37,500

Total par value of shares issued = No. of shares issued × Par value of shares

Total par value of shares issued = 2,500 × $8

Total par value of shares issued = $20,000

Additional Paid-in Capital = Total Market value of shares issued - Total par value of shares issued

Additional Paid-in Capital = $37,500 - $20,000

Additional Paid-in Capital = $17,500

(e) No. of shares issued and outstanding = 820,000 − 13,000 + 2,500

No. of shares issued and outstanding = 809,500

Cash Dividend per share = $0.40

Total cash dividend = No. of shares issued and outstanding × Cash Dividend per share

Total cash dividend = 809,500 × $0.40

Total cash dividend = $323,800

(g) No. of shares issued and outstanding = 809,500

Stock Dividend = 10%

Stock Dividend = 809,500 × 10%

Stock Dividend = 80,950 shares

Total value of Stock Dividend = 80,950 × $15

Total value of Stock Dividend = $1,214,250

Total Par Value of Stock Dividend = 80,950 × $8

Total Par Value of Stock Dividend = $647,600

Additional Paid-in Capital = Total value of Stock Dividend - Total Par Value of Stock Dividend

Additional Paid-in Capital = $1,214,250 - $647,600

Additional Paid-in Capital = $566,650

(h) No. of shares issued and outstanding = 809,500 + 80,950

No. of shares issued and outstanding = 890,450

Cash Dividend per share = $0.45

Total cash dividend = No. of shares issued and outstanding × Cash Dividend per share

Total cash dividend = 890,450 × $0.45

Total cash dividend = $400,703.

Expert Solution
Check Mark
To determine

(b)

Introduction:

Dividend is the amount that is paid to the stockholders’ periodically as a return on their investment in the company. Dividend can be made in two forms i.e. Cash Dividend and Stock Dividend.

To calculate:

Total cash and stock Dividend.

Answer to Problem 85PSB

Total Dividend (stock or cash) Paid during the year was $2,102,753.

Explanation of Solution

Given:

1,500,000 shares were authorized and 820,000 were issued and outstanding $8 par common shares.

As per the given transactions, the dividend (cash or stock) was paid on 4 dates:

Date Type of Dividend Amount ($)
April 6 Cash Dividend 164,000
September 14 Cash Dividend 323,800
October 25 Stock Dividend 1,214,250
December 20 Cash Dividend 400,703
- Total Dividend Paid (stock or cash) 2,102,753

Calculations:

1. Dividend paid on April 6:

No. of shares issued and outstanding = 820,000

Cash Dividend per share = $0.20

Total cash dividend = No. of shares issued and outstanding × Cash Dividend per share

Total cash dividend = 820,000 × $0.20

Total cash dividend = $164,000

2. Dividend paid on September 14:

No. of shares issued and outstanding = 820,000 − 13,000 + 2,500

No. of shares issued and outstanding = 809,500

Cash Dividend per share = $0.40

Total cash dividend = No. of shares issued and outstanding × Cash Dividend per share

Total cash dividend = 809,500 × $0.40

Total cash dividend = $323,800

3. Dividend paid on October 25:

No. of shares issued and outstanding = 809,500

Stock Dividend = 10%

Stock Dividend = 809,500 × 10%

Stock Dividend = 80,950 shares

Total value of Stock Dividend = 80,950 × $15

Total value of Stock Dividend = $1,214,250

Total Par Value of Stock Dividend = 80,950 × $8

Total Par Value of Stock Dividend = $647,600

Additional Paid-in Capital = Total value of Stock Dividend - Total Par Value of Stock Dividend

Additional Paid-in Capital = $1,214,250 - $647,600

Additional Paid-in Capital = $566,650

4. Dividend paid on December 20:

No. of shares issued and outstanding = 809,500 + 80,950

No. of shares issued and outstanding = 890,450

Cash Dividend per share = $0.45

Total cash dividend = No. of shares issued and outstanding × Cash Dividend per share

Total cash dividend = 890,450 × $0.45

Total cash dividend = $400,703.

Expert Solution
Check Mark
To determine

(c)

Introduction:

Dividend is the amount that is paid to the stockholders’ periodically as a return on their investment in the company. Dividend can be made in two forms i.e. Cash Dividend and Stock Dividend.

To calculate:

Total cash and stock Dividend.

Answer to Problem 85PSB

The net effect of the dividends will be:

  1. Retained Earnings will reduce by cash dividend i.e. $888,503.
  2. Balance in cash account will also reduce by cash dividend i.e. $888,503.

(Rest, stock dividend value will be adjusted by increasing common stock and additional capital, and by decreasing retained earnings by the same amount.).

Explanation of Solution

Given:

1,500,000 shares were authorized and 820,000 were issued and outstanding $8 par common shares.

As per the given transactions, the dividend (cash or stock) was paid on 4 dates:

Date Type of Dividend Amount ($)
April 6 Cash Dividend 164,000
September 14 Cash Dividend 323,800
October 25 Stock Dividend 1,214,250
December 20 Cash Dividend 400,703
- Total Dividend Paid (stock or cash) 2,102,753

In accounting, every transaction has dual effect.

There are two types of dividend i.e. Stock and Cash Dividend.

  1. The first effect of both the dividends (cash or stock) is on Retained Earnings of the company. The dividend payable amount reduces the balance in retained earnings.
  2. The second effect of the dividend (cash or stock) is on the account through which they are paid.
  3. If cash dividend is paid then the second effect is on cash account as cash in the company decreases.
  4. If stock dividend is paid then the second effect is on common stock and additional paid in capital account as new shares are issued as dividends which further increase the balance of these accounts.

Total Cash Dividend = $164,000 + $323,800 + $400,703

Total Cash Dividend = $888,503

Total Stock Dividend = $1,214,250

Total Dividends Paid = Total Cash Dividend + Total Stock Dividend

Total Dividends Paid = $888,503 + $1,214,250

Total Dividends Paid = $2,102,753

This means,

  1. Retained earnings will decrease by Total Dividends Paid i.e. $2,102,753.
  2. Balance in cash account will decrease by total cash dividends paid i.e. $888,503.
  3. Balance in common stock and additional paid in capital account will increase by Total Stock Dividend i.e. $1,214,250.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Chapter 10 Solutions

Cornerstones of Financial Accounting

Ch. 10 - 11. Describe how cumulative preferred stock...Ch. 10 - Prob. 12DQCh. 10 - 13. What balance sheet accounts are affected by...Ch. 10 - 14. What is the difference between par value and...Ch. 10 - Prob. 15DQCh. 10 - Prob. 16DQCh. 10 - Prob. 17DQCh. 10 - Prob. 18DQCh. 10 - Prob. 19DQCh. 10 - Prob. 20DQCh. 10 - Prob. 21DQCh. 10 - Prob. 22DQCh. 10 - Prob. 23DQCh. 10 - Prob. 24DQCh. 10 - Prob. 25DQCh. 10 - Prob. 26DQCh. 10 - Prob. 27DQCh. 10 - Prob. 28DQCh. 10 - Prob. 29DQCh. 10 - Prob. 30DQCh. 10 - Prob. 31DQCh. 10 - Prob. 32DQCh. 10 - Prob. 33DQCh. 10 - Prob. 34DQCh. 10 - Which of the following is not a component of...Ch. 10 - Which of the following statements is true? The...Ch. 10 - Authorized stock represents the: number of shares...Ch. 10 - Prob. 4MCQCh. 10 - Prob. 5MCQCh. 10 - Ames Corporation repurchases 10,000 shares of its...Ch. 10 - With regard to preferred stock, its stockholders...Ch. 10 - Prob. 8MCQCh. 10 - Prob. 9MCQCh. 10 - A company would repurchase its own stock for all...Ch. 10 - Prob. 11MCQCh. 10 - Prob. 12MCQCh. 10 - Prob. 13MCQCh. 10 - Prob. 14MCQCh. 10 - When a company declares a cash dividend, which of...Ch. 10 - Prob. 16MCQCh. 10 - Prob. 17MCQCh. 10 - The balance of the $2.50 par value Common Stock...Ch. 10 - When a company declares a 3-for-l stock split, the...Ch. 10 - Shea Company has 100,000 shares of 6%, S50 par...Ch. 10 - RVR Enterprises shows net income of $1 00,000 for...Ch. 10 - Comprehensive income: includes transactions that...Ch. 10 - Prob. 23MCQCh. 10 - Prob. 24MCQCh. 10 - Prob. 25CECh. 10 - Recording the Sale of Common Stock Plymouth...Ch. 10 - Calculating the Number of Shares Issued Castalia...Ch. 10 - Prob. 28CECh. 10 - Prob. 29CECh. 10 - Prob. 30CECh. 10 - Prob. 31CECh. 10 - Cash Dividends King Tut Corporation issued 19,000...Ch. 10 - Prob. 33CECh. 10 - Prob. 34CECh. 10 - Preferred and Common Stock Dividends Barstow...Ch. 10 - Preferred Stock Dividends Seashell Corporation has...Ch. 10 - Stockholder Profitability Ratios The following...Ch. 10 - Stockholder Payout Ratios The following...Ch. 10 - Prob. 39BECh. 10 - Recording the Sale of Common and Preferred Stock...Ch. 10 - Prob. 41BECh. 10 - Calculating the Number of Shares Issued Castanet...Ch. 10 - Prob. 43BECh. 10 - Accounting for Treasury Stock Paris Corporation...Ch. 10 - Treasury Stock Refer to the information for...Ch. 10 - Prob. 46BECh. 10 - Cash Dividends Cyprus Corporation issued 12,000...Ch. 10 - Prob. 48BECh. 10 - Augusta Corporation reported the following...Ch. 10 - Preferred and Common Stock Dividends Brookshed...Ch. 10 - Prob. 51BECh. 10 - Prob. 52BECh. 10 - Prob. 53BECh. 10 - Stockholder Payout Rations Super Duper Corporation...Ch. 10 - Prob. 55BECh. 10 - Prob. 56ECh. 10 - Outstanding Stock Lars Corporation shows the...Ch. 10 - Capital Stock Refer to the information for Stahl...Ch. 10 - Preparation of Stockholders Equity Section Refer...Ch. 10 - Issuing Common Stock Carmean Products Inc. sold...Ch. 10 - Issuing and Repurchasing Stock Mohawk Company had...Ch. 10 - Prepare the Stockholders' Equity Section Renee...Ch. 10 - Prepare the Stockholders' Equity Section Wildcat...Ch. 10 - Prob. 64ECh. 10 - Treasury Stock Transactions Garrett Inc. had no...Ch. 10 - Cash Dividends on Common Stock Berkwild Company is...Ch. 10 - Cash Dividends on Common and Preferred Stock Lemon...Ch. 10 - Prob. 68ECh. 10 - Stock Dividends Crystal Corporation has the...Ch. 10 - Stock Dividend The balance sheet of Cohen...Ch. 10 - Prob. 71ECh. 10 - Stock Dividends and Stock Splits The balance sheet...Ch. 10 - Preferred Dividends Eastern Inc.s equity includes...Ch. 10 - Cumulative Preferred Dividends Capital stock of...Ch. 10 - Retained Earnings Tigress Manufacturing had...Ch. 10 - Prob. 76ECh. 10 - Prob. 77ECh. 10 - Ratio Analysis Consider the following information....Ch. 10 - Ratio Analysis MJO Inc. has the following...Ch. 10 - Stockholders' Equity Terminology A list of terms...Ch. 10 - Prob. 81PSACh. 10 - Prob. 82PSACh. 10 - Treasury Stock Transactions Hansen Inc. engaged in...Ch. 10 - Statement of Stockholders' Equity At the end of...Ch. 10 - Common Dividends Fusion Payroll Service began 2019...Ch. 10 - Problem 10-86A Stock Dividends and Stock Splits...Ch. 10 - Prob. 87PSACh. 10 - Ratio Analysis Consider the following information...Ch. 10 - Prob. 81PSBCh. 10 - Prob. 82PSBCh. 10 - Treasury Stock Transactions Bentonite Adhesives...Ch. 10 - Statement of Stockholders' Equity At the end of...Ch. 10 - Common Dividends Thompson Payroll Service began in...Ch. 10 - Prob. 86PSBCh. 10 - Prob. 87PSBCh. 10 - Prob. 88PSBCh. 10 - Prob. 89.1CCh. 10 - Prob. 89.2CCh. 10 - Prob. 90.1CCh. 10 - Prob. 90.2CCh. 10 - Prob. 91CCh. 10 - Prob. 92.1CCh. 10 - Prob. 92.2CCh. 10 - Prob. 92.3CCh. 10 - Prob. 92.4CCh. 10 - Prob. 92.5CCh. 10 - Prob. 93.1CCh. 10 - Prob. 93.2CCh. 10 - Prob. 93.3CCh. 10 - Prob. 93.4CCh. 10 - Prob. 93.5CCh. 10 - Prob. 93.6CCh. 10 - Prob. 94.1CCh. 10 - Prob. 94.2CCh. 10 - Prob. 94.3CCh. 10 - Prob. 94.4CCh. 10 - Prob. 94.5CCh. 10 - Prob. 94.6CCh. 10 - Prob. 95.1CCh. 10 - Prob. 95.2C
Knowledge Booster
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • Common Dividends Fusion Payroll Service began 2019 with 1,200,000 authorized and 375,000 issued and outstand ing $5 par common shares. During 2019, Fusion entered into the following transactions: Declared a S0.30 per-share cash dividend on March 10. Paid the $0.30 per-share dividend on April 10. Repurchased 8,000 common shares at a cost of $18 each on May 2. Sold 1.500 unissued common shares for $23 per share on June 9. Declared a $0.45 per-share cash dividend on August 10. Paid the $0.45 per-share dividend on September 10. Declared and paid a 5% stock dividend on October 15 when the market price of the common stock was $25 per share. Declared a $0.50 per-share cash dividend on November 10. Paid the $0.50 per-share dividend on December 10. Required: Prepare journal entries for each of these transactions. (Note: Round to the nearest dollar.) Determine the total dollar amount of dividends (cash and stock) for the year. CONCEPTUAL CONNECTION Determine the effect on total assets and total stockholders equity of these dividend transactions.
    Cumulative Preferred Dividends Capital stock of Barr Company includes: As of December 31, 2018, 2 years dividends are in arrears on the preferred stock. During 2019, Barr plans to pay dividends that total S360.000. Required: Determine the amount of dividends that will be paid to Barrs common and preferred stockholders in 2019. If Barr paid $280,000 of dividends, determine how much each group of stockholders would receive.
    Statement of Stockholders' Equity At the end of 2019, Stanley Utilities Inc. had the following equity accounts and balances: During 2020, Haley engaged in the following transactions involving its equity accounts: Sold 5,000 shares of common stock for $19 per share. Sold 1.200 shares of 12%, $50 par preferred stock at $75 per share. Declared and paid cash dividends of $22,000. Repurchased 1,000 shares of treasury stock (common) for $24 per share. Sold 300 of the treasury shares for $26 per share. Required: Prepare the journal entries for Transactions a through e. Assume that 2020 net income was $123,700. Prepare a statement of stockholders equity at December 31, 2020.
  • Statement of Stockholders' Equity At the end of 2019, Stanley Utilities Inc. had the following equity accounts and balances: During 2020, Stanley Utilities engaged in the following transactions involving its equity accounts: Sold 3,300 shares of common stock for $15 per share. Sold 1,000 shares of 12%, $100 par preferred stock at $105 per share. Declared and paid cash dividends of $8,000. Repurchased 1,000 shares of treasury stock (common) for $38 per share. Sold 400 of the treasury shares for $42 per share. Required: Prepare the journal entries for Transactions a through e. Assume that 2020 net income was $87,000. Prepare a statement of stockholders equity at December 31, 2020.
    Stock Dividends Crystal Corporation has the following information regarding its common stock: S10 par. with 500.000 shares authorized, 213,000 shares issued, and 183,700 shares outstanding. On August 22, 2019, Crystal declared and paid a 15% stock dividend when the market price of the common stock was $30 per share. Required: Prepare the journal entries to record declaration and payment of this stock dividend. Prepare the journal entries to record declaration and payment assuming it was a 30% stock dividend.
    Contributed Capital Adams Companys records provide the following information on December 31, 2019: Additional information: 1. Common stock has a 5 par value, 50,000 shares are authorized, 15,000 shares have been issued and are outstanding. 2. Preferred stock has a 100 par value, 3,000 shares are authorized, 800 shares have been issued and are outstanding. Two hundred shares have been subscribed at 120 per share. The stock pays an 8% dividend, is cumulative, and is callable at 130 per share. 3. Bonds payable mature on January 1, 2023. They carry a 12% annual interest rate, payable semiannually. Required: Prepare the Contributed Capital section of the December 31, 2019, balance sheet for Adams. Include appropriate parenthetical notes.
  • Treasury Stock, Cost Method Bush-Caine Company reported the following data on its December 31, 2018, balance sheet: The following transactions were reported by the company during 2019: 1. Reacquired 200 shares of its preferred stock at 57 per share. 2. Reacquired 500 shares of its common stock at 16 per share. 3. Sold 100 shares of preferred treasury stock at 58 per share. 4. Sold 200 shares of common treasury stock at 17 per share. 5. Sold 100 shares of common treasury stock at 9 per share. 6. Retired the shares of common stock remaining in the treasury. The company maintains separate treasury stock accounts and related additional paid-in capital accounts for each class of stock. Required: 1. Prepare the journal entries required to record the treasury stock transactions using the cost method. 2. Assuming the company earned a net income in 2019 of 30.000 and declared and paid dividends of 10,000, prepare the shareholders equity section of its balance sheet at December 31, 2019.
    Stock Dividend The balance sheet of Cohen Enterprises includes the following stockholders equity section: Required: On April 15, 2019, when its stock was selling for $18 per share, Cohen Enterprises issued a small stock dividend. After making the journal entry to recognize the stock dividend, Cohens total capital stock increased by $270,000. In percentage terms, what was the size of the stock dividend? Ignoring the small stock dividend discussed in Requirement 1, assume that on June 1, 2019, when its stock was selling for $22 per share, Cohen issued a large stock dividend. After making the journal entry to recognize the stock dividend, Cohens retained earnings decreased by $75,000. In percentage terms, what was the size of the stock dividend?
    Cash dividends on the 10 par value common stock of Garrett Company were as follows: The 4th-quarter cash dividend was declared on December 21, 2019, to shareholders of record on December 31, 2019. Payment of the 4th-quarter cash dividend was made on January 18, 2020. In addition, Garrett declared a 5% stock dividend on its 10 par value common stock on December 3, 2019, when there were 300,000 shares issued and outstanding and the market value of the common stock was 20 per share. The shares were issued on December 24, 2019. What was the effect on Garretts shareholders equity accounts as a result of the preceding transactions?
    • SEE MORE QUESTIONS
    Recommended textbooks for you
  • Cornerstones of Financial Accounting
    Accounting
    ISBN:9781337690881
    Author:Jay Rich, Jeff Jones
    Publisher:Cengage Learning
    Intermediate Accounting: Reporting And Analysis
    Accounting
    ISBN:9781337788281
    Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
    Publisher:Cengage Learning
  • Cornerstones of Financial Accounting
    Accounting
    ISBN:9781337690881
    Author:Jay Rich, Jeff Jones
    Publisher:Cengage Learning
    Intermediate Accounting: Reporting And Analysis
    Accounting
    ISBN:9781337788281
    Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
    Publisher:Cengage Learning
    Dividend explained; Author: The Finance Storyteller;https://www.youtube.com/watch?v=Wy7R-Gqfb6c;License: Standard Youtube License