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Chapter 13: Q32E (page 716)

Determining the effects of cash dividends, stock dividends, and stock splits

Complete the following chart by inserting a check mark for each statement that is true.

Cash dividend Stock dividend Stock split

Decreases retained earnings

Has no effect on a liability

Increases paid-in capital by thesame amount that it decreasesretained earnings

Decreases both total assets andtotal stockholders鈥� equity

Has no effect on totalstockholders鈥� equity

Short Answer

Expert verified

CashandStock dividenddecreases retained earnings.

Cashdividend,Stock dividend, and Stock Splithas no effect on a liability.

Stock dividendincreases paid-in capital by the same amount that it decreases retained earnings.

Cash dividenddecreases both total assets and total stockholders鈥� equity.

Stock dividend and Stock dividendhas no effect on total stockholders鈥� equity.

Step by step solution

01

Basic Introduction

Cash dividends are an availability of a part of the profit or surplus as a dividend for the stockholders of the corporation. Stock dividends are a release of stock as dividend for the stockholders of the corporation. Stock split is a distribution of issues shares in the ratio as decided by corporation.

02

The effects of cash dividends, stock dividends, and stock splits

Cash dividend

Stock dividend

Stock split

Decreases retained earnings

鉁�

鉁�

Has no effect on a liability

鉁�

鉁�

鉁�

Increases paid-in capital by the same amount that it decreases retained earnings

鉁�

Decreases both total assets and total stockholders鈥� equity

鉁�

Has no effect on total stockholders鈥� equity

鉁�

鉁�

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Most popular questions from this chapter

Eates Corp. issued 8,000 shares of no-par common stock for \(13 per share.

Requirements

1. Record issuance of the stock if the stock:

a. is true no-par stock.

b. has stated value of \)3 per share.

Journalizing treasury stock transactions and reporting stockholders鈥� equity

Southern Amusements Corporation had the following stockholders鈥� equity on

November 30:

Paid-In Capital:

Common Stock鈥擻(5 Par Value; 1,300 sharesauthorized, 250 shares issued and outstanding1,250

Retained Earnings50,000

Total Stockholders鈥� Equity \) 55,000

Stockholders鈥� Equity

Paid-In Capital in Excess of Par鈥擟ommon 3,750

Total Paid-In Capital

\(5,000

On December 30, Southern purchased 200 shares of treasury stock at \)15 per share.

Requirements

1. Journalize the purchase of the treasury stock.

Journalizing issuance of stock and preparing the stockholders鈥� equity section of the balance sheet

The charter for ASAP-TV, Inc. authorizes the company to issue 100,000 shares of \(5, no-par preferred stock and 500,000 shares of common stock with \)1 par value. During its start-up phase, ASAP-TV completed the following transactions:

Sep. 6 Issued 550 shares of common stock to the promoters who organized the corporation, receiving cash of \(16,500.

12 Issued 400 shares of preferred stock for cash of \)23,000.

14 Issued 1,500 shares of common stock in exchange for land with a market value of $17,000.

Requirements

1. Record the transactions in the general journal.

Computing earnings per share, price/earnings ratio, and rate of return on common stockholders鈥� equity

Bianchi Company reported these figures for 2018 and 2017:

2018 2017

Income Statement鈥攑artial:

Net Income \( 34,380 \) 18,000

Dec. 31, 2018 Dec. 31, 2017

Balance Sheet鈥攑artial:

Total Assets \( 285,000 \) 280,000

Paid-In Capital:

Preferred Stock鈥�11%, \(9 Par Value; 60,000 shares

authorized, 12,000 shares issued and outstanding

\) 108,000 \( 108,000

Common Stock鈥擻)2 Par Value; 60,000 shares

authorized, 50,000 shares issued and outstanding

100,000 100,000

Paid-In Capital in Excess of Par鈥擟ommon 14,000 14,000

Retained Earnings 60,500 38,000

Total Stockholders鈥� Equity \( 282,500 \) 260,000

Requirements

1. Compute Bianchi Company鈥檚 earnings per share for 2018. Assume the company paid the minimum preferred dividend during 2018. Round to the nearest cent.

Organizing a corporation and issuing stock

Montel and Jeremy are opening a paint store. There are no competing paint stores in the area. They must decide how to organize the business. They anticipate profits of \(350,000 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.

Requirements

3. If they decide to issue \)5 par common stock and anticipate an initial market price of \(20 per share, how many shares will they need to issue to raise \)2,750,000?
See all solutions

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