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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

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

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.

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

Explanation

Record the declaration and issuance of stock dividends.

Transaction Number Account Titles and Explanation Debit ($) Credit ($)
1 Stock 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)
2 Stock Dividends Distributable         (3) 40,000
    Common Stock 40,000
(To record the distribution of stock dividends)

Table (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                             (1)

Compute the stock dividends amount payable to common stockholders.

Stock dividends =[ Number of stock dividends sharesdeclared× Market value per share]10,000 shares (1) × $13= $130,000                    (2)

Compute stock dividends distributable value

(b)

To determine
(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
(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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