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Chapter 15: Q14E. (page 815)

(Entries for Stock Dividends and Stock Splits) The stockholders鈥� equity accounts of G.K. Chesterton Company have the following balances on December 31, 2017.

Common stock, \(10 par, 300,000 shares issued and outstanding \)3,000,000

Paid-in capital in excess of par鈥攃ommon stock 1,200,000

Retained earnings 5,600,000

Shares of G.K. Chesterton Company stock are currently selling on the Midwest Stock Exchange at $37.

Instructions

Prepare the appropriate journal entries for each of the following cases.

  1. A stock dividend of 5% is declared and issued.
  2. A stock dividend of 100% is declared and issued.
  3. A 2-for-1 stock split is declared and issued.

Short Answer

Expert verified

In the first case, the total Common Stock Dividend Distributable is $150,000,and in the second, it is $3,000,000.

Step by step solution

01

Meaning of Stock Dividend

Stock dividends are shares of stock given to shareholders as dividend payments rather than cash. A company issues stock dividends in the place of cash dividends when it has little liquid cash on hand

02

Preparing Journal Entries

S.no.

Particular

Folio

Debit $

Credit $

(a)

Retained Earnings

555,000

Common Stock Dividend

Distribution Distributable

150,000

Paid-in Capital in Excess of Par-Common

Stock

405,000

To record issue of stock.

Common Stock Dividend Distributable

150,000

Common Stock

150,000

To record the distribution of common stock.

(b)

Retained Earnings

3,000,000

Common Stock Dividend Distributable

3,000,000

To record the issue of dividends.

Common Stock Dividend Distributable

3,000,000

Common Stock

3,000,000

To record the distribution of dividends.

03

Explaining the situation when a 2-for-1 stock split is declared and issued.

On no entry, the par value becomes $5, and the number of shares outstanding increases to 600,000.

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Most popular questions from this chapter

(Recording the Issuances of Common Stock) During its first year of operations, Collin Raye Corporation had the following transactions pertaining to its common stock.

Jan. 10 Issued 80,000 shares for cash at \(6 per share.

Mar. 1 Issued 5,000 shares to attorneys in payment of a bill for

\)35,000 for services rendered in helping the company to

incorporate.

July 1 Issued 30,000 shares for cash at \(8 per share.

Sept. 1 Issued 60,000 shares for cash at \)10 per share.

Instructions

  1. Prepare the journal entries for these transactions, assuming that the common stock has a par value of \(5 per share.
  2. Prepare the journal entries for these transactions, assuming that the common stock is no-par with a stated value of \)3 per share.

(Dividend Entries) The following data were taken from the balancesheet accounts of Masefield Corporation on December 31, 2016.

Current assets \(540,000

Debt investments (trading) 624,000

Common stock (par value \)10) 500,000

Paid-in capital in excess of par 150,000

Retained earnings 840,000

Instructions

Prepare the required journal entries for the following unrelated items.

  1. A 5% stock dividend is declared and distributed at a time when the market price per share is \(39.
  2. The par value of the common stock is reduced to \)2 with a 5-for-1 stock split.
  3. A dividend is declared January 5, 2017, and paid January 25, 2017, in bonds held as an investment. The bonds have a book value of \(100,000 and a fair value of \)135,000.

Green Day Corporation has outstanding 400,000 shares of \(10 par value common stock. The corporation declares a 5% stock dividend when the fair value of the stock is \)65 per share. Prepare the journal entries for Green Day Corporation for both the date of declaration and the date of distribution.

Discuss the propriety of showing:

  1. Treasury stock as an asset.
  2. 鈥淕ain鈥� or 鈥渓oss鈥� on sale of treasury stock as additions to or deductions from income.
  3. Dividends received on treasury stock as income.

Briefly discuss the implications of the financial statement presentation project for the reporting of stockholders鈥� equity.
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