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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Problem 10-86A Stock Dividends and Stock Splits

Lance Products’ balance sheet includes total assets of $587,000 and the following equity account balances at December 31, 2019:

Chapter 10, Problem 86PSA, Problem 10-86A Stock Dividends and Stock Splits Lance Products balance sheet includes total assets

Lance’s common stock is selling for $12 per share on December 31, 2019.

Required:

  1. How much would Lance Products have reported for total assets and retained earnings on December 31, 2019, if the firm had declared and paid a $15,000 cash dividend on December 31, 2019? Prepare the journal entry for this cash dividend.
  2. How much would Lance have reported for total assets and retained earnings on December 31, 2019, if the firm had issued a 15% stock dividend on December 31, 2019? Prepare the journal entry for this stock dividend.
  3. CONCEPTUAL CONNECTION How much would Lance have reported for total assets and retained earnings on December 31, 2019, if the firm had effected a 2-for-l stock split on December 31, 2019? Is a journal entry needed to record the stock split? Why or why not?

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 cash dividend and calculate value of retained earnings as well total assets.

Explanation

Given:

Total Assets is equal to $587,000, common stock selling at $12 as on 31st December 2019 and following equity statement:

Particulars $
Common stock, $2 par, 80,000 shares issued and outstanding 160,000
(+) Additional Paid-in capital − common stock 24,000
Total Capital Stock 184,000
Retained Earnings 217,000
Total Stockholders’ equity 401,000

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...
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 prepare:

Journal Entry for stock dividend and calculate value of retained earnings as well total assets.

To determine

(c)

Introduction:

In stock split, shares outstanding increases by given ratio and the price of stock decreases by the same ratio wherein the total stockholders’ equity remains unchanged.

To state:

Whether journal entry will be recorded for stock split and the value of retained earnings as well total assets.

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