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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’s 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

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

Bianchi Company reported these figures for 2018 and 2017:

2018 2017

Income Statement—partial:

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

Dec. 31, 2018 Dec. 31, 2017

Balance Sheet—partial:

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

Paid-In Capital:

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

authorized, 12,000 shares issued and outstanding

\) 108,000 \( 108,000

Common Stock—\)2 Par Value; 60,000 shares

authorized, 50,000 shares issued and outstanding

100,000 100,000

Paid-In Capital in Excess of Par—Common 14,000 14,000

Retained Earnings 60,500 38,000

Total Stockholders’ Equity \( 282,500 \) 260,000

Requirements

3. Compute Bianchi Company’s rate of return on common stockholders’ equity for 2018. Assume the company paid the minimum preferred dividend during 2018. Round to the nearest whole percent.

What is a corporation?

London Corporation has two classes of stock: Common, \(1 par value; and Preferred, \)4 par value. Journalize the issuance of 10,000 shares of common stock for $8 per share.

Journalizing treasury stock transactions and reporting stockholders’ equity

Southern Amusements Corporation had the following stockholders’ equity on

November 30:

Paid-In Capital:

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

Retained Earnings50,000

Total Stockholders’ Equity \) 55,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 3,750

Total Paid-In Capital

\(5,000

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

Requirements

3. How many shares of common stock are outstanding after the purchase oftreasury stock?

Accounting for a stock split

Decor and More Imports recently reported the following stockholders’ equity:

Common Stock—\(1 Par Value; 490,000,000 shares

authorized, 119,000,000 shares issued and outstanding

Paid-In Capital:

654,000,000

\) 119,000,000

267,000,000

Retained Earnings

Total Stockholders’ Equity \( 921,000,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 148,000,000

Total Paid-In Capital

Suppose Decor and More split its common stock 2-for-1 in order to decrease the market price per share of its stock. The company’s stock was trading at \)17 per share immediately before the split.

Requirements

1. Prepare the stockholders’ equity section of the Decor and More Imports balance sheet after the stock split.
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