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Chapter 13: Q30E_ 2 (page 715)

Journalizing cash and stock dividends

Self-Defense Schools, Inc. is authorized to issue 200,000 shares of \(2 par common stock. The company issued 73,000 shares at \)5 per share. When the market price of common stock was \(7 per share, Self-Defense Schools declared and distributed a 14% stock dividend. Later, Self-Defense Schools declared and paid a \)0.70 per share cash dividend.

Requirements

2. Journalize the declaration and the payment of the cash dividend.

Short Answer

Expert verified

Retained Earnings is debited with $439,460; Common stock dividend $43,946 and paid in capital in excess of par $395,514 is credited

Common stock dividend is debited, and Cash is credited with $43,946

Step by step solution

01

Basic Introduction-

Cash dividend 62,780 shares (73,000-14%)

Retained Earnings(62,780 shares * $7)

Common stock dividend (62,780 shares * $0.70)

Paid in capital in excess of par[62,780 shares ($7- $0.7)]

02

Journals-

Date

Transaction

Debit

Credit

Retained Earnings

$439,460

Common stock dividend

$43,946

Paid in capital in excess of par

$395,514

To record stock dividend declared

Common stock dividend

$43,946

Cash

$43,946

To record dividend paid

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Jimmy and Randy are opening a comic store. There are no competing comic stores in the area. They must decide how to organize the business. They anticipate profits of $550,000 the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow. They feel the corporate form of operation will be best for the long term. They seek your advice.

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What is par value?

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Jimmy and Randy are opening a comic store. There are no competing comic stores in the area. They must decide how to organize the business. They anticipate profits of $550,000 the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow. They feel the corporate form of operation will be best for the long term. They seek your advice.

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