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Chapter 13: Q9SE_2 (page 709)

Question: Journalizing a small stock dividend

Element Water Sports has 13,000 shares of \(1 par value common stock outstanding.

Element distributes a 5% stock dividend when the market value of its stock is \)15 per share.

Requirements

2. What is the overall effect of the stock dividend on Element鈥檚 total assets?

Short Answer

Expert verified

Answer

No effect of stock dividend is traced on the total assets of the corporation.

Step by step solution

01

Basic Introduction

Total asset is the value owned by the corporation both for short and long period of time. Total assets include current and non-current assets of the corporation.

02

The overall effect of the stock dividend on total assets

Stock dividends do not bring any changes in the total asset of the balance sheet but instead affect only the equity side by redistributing portion of the retained earnings to the common stock.

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Most popular questions from this chapter

Question: Organizing a corporation and issuing stock

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.

Requirements

2. Would you recommend they initially issue preferred or common stock? Why?

Question: Identifying sources of equity, stock issuance, and dividends

Tillman Comfort Specialists, Inc. reported the following stockholders鈥� equity on its balance sheet at June 30, 2018:

Preferred Stock鈥�5%, ? Par Value; 625,000 shares

authorized, 325,000 shares issued and outstanding

Paid-In Capital:

\( 1,300,000

1,350,000

Stockholders鈥� Equity

Paid-In Capital in Excess of Par鈥擟ommon 2,600,000

Total Paid-In Capital 5,250,000

Retained Earnings 11,800,000

Total Stockholders鈥� Equity \) 17,050,000

Common Stock鈥�$1 Par Value; 7,000,000 shares

authorized, 1,350,000 shares issued and outstanding

Requirements

1. Identify the different classes of stock that Tillman Comfort Specialists has outstanding.

Question - Describing corporation characteristics

Due to recent beef recalls, Southwest Steakhouse is considering incorporating. Bob, the owner, wants to protect his personal assets in the event the restaurant is sued.

Requirements

2. What are some disadvantages of organizing as a corporation?

Identifying advantages and disadvantages of a corporation

Following is a list of advantages and disadvantages of the corporate form of business. Identify each quality as either an advantage or a disadvantage.

a. Ownership and management are separated.

Question: Accounting for cash dividends

Java Company earned net income of \(85,000 during the year ended December 31, 2018. On December 15, Java declared the annual cash dividend on its 4% preferred stock (par value, \)120,000) and a $0.25 per share cash dividend on its common stock (50,000 shares). Java then paid the dividends on January 4, 2019.

Requirements

2. Journalize for Java the entry paying the cash dividends on January 4, 2019.
See all solutions

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