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Entries for stock dividends Senior Life Co. is an HMO for businesses in the Portland area. The following account balances appear on the balance sheet of Senior Life Co.: Common stock (800,000 shares authorized; 500,000 shares issued), $4 par, $2,000,000; Paid-in capital in excess of par— common stock, $1,000,000; and Retained earnings, $33,500,000. The board of directors declared a 2% stock dividend when the market price of the stock was $13 a share. Senior Life Co. reported no income or loss for the current year. a. Journalize the entries to record (1) the declaration of the dividend, capitalizing an amount equal to market value, and (2) the issuance of the stock certificates. b. Determine the following amounts before the stock dividend was declared: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders’ equity. c. Determine the following amounts after the stock dividend was declared and closing entries were recorded at the end of the year: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders’ equity.

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 13, Problem 10E
Textbook Problem
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Entries for stock dividends

Senior Life Co. is an HMO for businesses in the Portland area. The following account balances appear on the balance sheet of Senior Life Co.: Common stock (800,000 shares authorized; 500,000 shares issued), $4 par, $2,000,000; Paid-in capital in excess of par— common stock, $1,000,000; and Retained earnings, $33,500,000. The board of directors declared a 2% stock dividend when the market price of the stock was $13 a share. Senior Life Co. reported no income or loss for the current year.

  1. a. Journalize the entries to record (1) the declaration of the dividend, capitalizing an amount equal to market value, and (2) the issuance of the stock certificates.
  2. b. Determine the following amounts before the stock dividend was declared: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders’ equity.
  3. c. Determine the following amounts after the stock dividend was declared and closing entries were recorded at the end of the year: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders’ equity.

(a)

To determine

Journalize the entries to record the declaration and issuance of stock dividends.

Explanation of Solution

Stock Dividends:  It refers to the payment of the dividend to its shareholders by the corporation in the form of shares rather than cash is referred as stock dividend.

Stockholders’ equity: It refers to the amount of capital that includes the amount of investment by the stockholders, earnings generated from the normal business operations, and less any dividends paid to the stockholders.

Retained earnings: It refers to the amount of earnings that are not paid as dividends to the stockholders. Retained earnings are kept by the corporation for reinvestments, payment of debts, and future growth. 

Record the declaration and issuance of stock dividends.

Transaction NumberAccount Titles and ExplanationDebit ($)Credit ($)
1Stock Dividends                               (2)130,000 
 

    Common Stock Dividends

    Distributable                                (3)

 40,000
 

    Paid-in Capital in excess of Par

    Value-Common stock                  (4)

 90,000
 (To record the declaration of stock dividends)  
 
2Stock Dividends Distributable         (3)                         40,000 
     Common Stock 40,000
 (To record the distribution of stock dividends)  

Table (1)

Working notes:

(1)

Compute the number of stock dividends shares declared.

Number of stock dividends shares declared = {Number of shares issued×Stock dividend percentage}= 500,000 shares × 2%= 10,000 shares                          

(2)

Compute the stock dividends amount payable to common stockholders

(b)

To determine

Calculate (1) Total paid-in capital, (2) total retained earnings, and (3) total stockholders’ equity amount before the declaration of the stock dividends.

(c)

To determine

Calculate (1) Total paid-in capital, (2) total retained earnings, and (3) total stockholders’ equity amount after the declaration of the stock dividends.

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Chapter 13 Solutions

Financial Accounting
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