Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 15: Q14E. (page 815)

(Entries for Stock Dividends and Stock Splits) The stockholders’ 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—common 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.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

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

Graves Mining Company declared, on April 20, a dividend of \(500,000 payable on June 1. Of this amount, \)125,000 is a return of capital. Prepare the April 20 and June 1 entries for Graves.

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.

Lindsey Hunter Corporation is authorized to issue 50,000 shares of \(5 par value common stock. During 2017, Lindsey Hunter took part in the following selected transactions.

  1. Issued 5,000 shares of stock at \)45 per share, less costs related to the issuance of the stock totaling \(7,000.
  2. Issued 1,000 shares of stock for land appraised at \)50,000. The stock was actively traded on a national stock exchange at approximately \(46 per share on the date of issuance.
  3. Purchased 500 shares of treasury stock at \)43 per share. The treasury shares purchased were issued in 2013 at $40 per share.

Instructions

  1. Prepare the journal entry to record item 1.
  2. Prepare the journal entry to record item 2.
  3. Prepare the journal entry to record item 3 using the cost method.

(Treasury Stock—Ethics) Lois Kenseth, president of Sycamore Corporation, is concerned about several large stockholders who have been very vocal lately in their criticisms of her leadership. She thinks they might mount a campaign to have her removed as the corporation’s CEO. She decides that buying them out by purchasing their shares could eliminate them as opponents, and she is confident they would accept a “good” offer. Kenseth knows the corporation’s cash position is decent, so it has the cash to complete the transaction. She also knows the purchase of these shares will increase earnings per share, which should make other investors quite happy. (Earnings per share is calculated by dividing net income available for the common shareholders by the weighted-average number of shares outstanding. Therefore, if the number of shares outstanding is decreased by purchasing treasury shares, earnings per share increases.)

Instructions

Answer the following questions.

  1. Who are the stakeholders in this situation?
  2. What are the ethical issues involved?
  3. Should Kenseth authorize the transaction?
See all solutions

Recommended explanations on Business Studies Textbooks

Change Management

Read Explanation

Operational Management

Read Explanation

Organizational Communication

Read Explanation

Managers

Read Explanation

Nature of Business

Read Explanation

Strategic Analysis

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free