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Chapter 13: Q9SE_1 (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

1. Journalize Element’s declaration of the stock dividend on August 15 and distribution on August 31.

Short Answer

Expert verified

Answer

August15- stock dividend will be debited by $9,750, common stock dividend distribution is credited by $650 and Paid- in capital will be credited by $9,100.

August 31- Common Stock Dividend Distributable will be debited by $650 and Common Stock—$1 Par Value will be credited by $650.

Step by step solution

01

Calculation of stock dividend

Stockdividendshare=Noofsharesoutstanding×Percentageofstockdividend=13000×5%=650shares

02

Journal entry of stock dividend

Date

Transaction

Debit

Credit

August 15

Stock dividend (650*$15)

$9,750

Common stock Dividend distribution (650* $1)

$650

Paid- in capital (650* $14)

$9,100

To record dividend declared

August 31

Common Stock Dividend Distributable

$650

Common Stock—$1 Par Value

$650

To record dividend distributed

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Most popular questions from this chapter

A Identifying sources of equity, stock issuance, and dividends

Voyage Comfort Specialists, Inc. reported the following stockholders’ equity on its balance sheet at June 30, 2018:

Preferred Stock—7%, ? Par Value; 625,000 shares

authorized, 280,000 shares issued and outstanding

Paid-In Capital:

\( 1,400,000

1,340,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 2,900,000

Total Paid-In Capital 5,640,000

Retained Earnings 12,000,000

Total Stockholders’ Equity \) 17,640,000

Common Stock—\(1 Par Value; 3,000,000 shares

authorized, 1,340,000 shares issued and outstanding

Requirements

4. No preferred dividends are in arrears. Journalize the declaration of a \)500,000 dividend at June 30, 2018, and the payment of the dividend on July 20, 2018. Use separate Dividends Payable accounts for preferred and common stock. An explanation is not required.

Analyzing the effect of prior-period adjustments

Taylor Corporation discovered in 2019 that it had incorrectly recorded in 2018 a cash payment of \(70,000 for utilities expense. The correct amount of the utilities expense was \)35,000.

Requirements

2. How should this error be reported in the 2019 financial statements?

Question: Journalizing a large stock dividend

Nelly, Inc. had 320,000 shares of \(2 par value common stock issued and outstanding as of December 15, 2018. The company is authorized to issue 1,300,000 common shares. On December 15, 2018, Nelly declared a 40% stock dividend when the market value for Nelly’s common stock was \)7 per share. The stock was issued on Dec. 30.

Requirements

2. How many shares of common stock are outstanding after the dividend?

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.

f. Entity can raise more money than a partnership or sole proprietorship.

Journalizing issuance of stock and preparing the stockholders’ 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.

2. Prepare the stockholders’ equity section of the ASAP-TV balance sheet atSeptember 30, 2018, assuming ASAP-TV, Inc. had net income of \)38,000 for the month.
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