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Chapter 15: Question 14BE (page 811)

Use the information from BE15-13, but assume Green Day Corporation declared a 100% stock dividend rather than a 5% stock dividend. Prepare the journal entries for both the date of declaration and the date of distribution.

Short Answer

Expert verified

The dividend distributed by Green Day Corporation is $4,000,000.

Step by step solution

01

Meaning of Dividend Declaration:

The term dividend declaration refers to the process of proposing the news to share the part of profit among the outstanding shareholders. A company records it as aliability because it owes the business to pay the declared amount of dividend.

02

Preparing Journal Entries  

Declaration date

Date

Particular

Debit ($)

Credit $)

Retained Earnings A/c

4,000,000

Common stock Dividend

Distributable A/c

4,000,000

To record the payment of dividend

Distribution Date

Common Stock Dividend Distributable A/c.

4,000,000

Common Stock A/c.

4,000,000

To record the payment of dividend

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Most popular questions from this chapter

(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.

McNabb Corp. had \(100,000 of 7%, \)20 par value preferred stock, and 12,000 shares of \(25 par value common stock outstanding throughout 2017.

  1. Assuming that total dividends declared in 2017 were \)64,000, and that the preferred stock is not cumulative but is fully participating, common stockholders should receive 2017 dividends of what amount?
  2. Assuming that total dividends declared in 2017 were \(64,000, and that the preferred stock is fully participating and cumulative with preferred dividends in arrears for 2016, preferred stockholders should receive 2017 dividends totaling what amount?
  3. Assuming that total dividends declared in 2017 were \)30,000, that the preferred stock is cumulative, nonparticipating, and was issued on January 1, 2016, and that $5,000 of preferred dividends were declared and paid in 2016, the common stockholders should receive 2017 dividends totaling what amount?

Hinges Corporation issued 500 shares of \(100 par value preferred stock for \)61,500. Prepare Hinges journal entry.

(Stock and Cash Dividends) Earnhart Corporation has outstanding 3,000,000 shares of common stock with a par value of \(10 each. The balance in its Retained Earnings account at January 1, 2017, was \)24,000,000, and it then had Paid-in Capital in Excess of Par—Common Stock of \(5,000,000. During 2017, the company’s net income was \)4,700,000. A cash dividend of \(0.60 a share was declared on May 5, 2017, and was paid June 30, 2017, and a 6% stock dividend was declared on November 30, 2017, and distributed to stockholders of record at the close of business on December 31, 2017. You have been asked to advise on the proper accounting treatment of the stock dividend.

The existing stock of the company is quoted on a national stock exchange. The market price of the stock has been as follows.

October 31, 2017 \)31

November 30, 2017 \(34

December 31, 2017 \)38

Instructions

  1. Prepare the journal entry to record the declaration and payment of the cash dividend.
  2. Prepare the journal entry to record the declaration and distribution of the stock dividend.
  3. Prepare the stockholders’ equity section (including schedules of retained earnings and additional paid-in capital) of the balance sheet of Earnhart Corporation for the year 2017 on the basis of the foregoing information. Draft a note to the financial statements setting forth the basis of the accounting for the stock dividend, and add separately appropriate comments or explanations regarding the basis chosen.

What factors influence the dividend policy of a company?
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