Exercise 15-14 The stockholders’ equity accounts of Sarasota Company have the fo

Question

Exercise 15-14

The stockholders’ equity accounts of Sarasota Company have the following balances on December 31, 2017.

Shares of Sarasota Company stock are currently selling on the Midwest Stock Exchange at $40.

Prepare the appropriate journal entries for each of the following cases. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

  

Common stock, $10 par, 304,000 shares issued and outstanding $3,040,000 Paid-in capital in excess of par—common stock 1,290,000 Retained earnings 5,340,000 No. Account Titles and Explanation Debit Credit

Explanation / Answer

Sarasota Company

Journal

Working note:

(i) Stock dividend is 7%

Hence, new shares to be issued to the existing shareholders = 304,000 x 7%

= 21,280

Book value of 1 share = $10

Hence, common stock dividend distributable account will be credited by 21,280 x 10 = $212,800

Market value of 1 share = $40

Hence, retained earnings will be debited by = 21280 x 40

= $851,200

Hence, rest amount will be credited to Paid in value in excess of par = 851,200 - 212,800

= $638,400

(ii) Stock dividend is 100%

When large stock dividend is declared, journal entry is made to transfer the par value of shares being issued from retained earnings to the paid in capital.

Hence, new shares to be issued to the existing shareholders = 304,000 x 100%

= 304,000

Book value of 1 share = $10

Hence, common stock dividend distributable account will be credited by 304,000 x 10 = $3,040,000

(iii) For stock split, no journal entry is recorded. Only memo entry is recorded for decrease in par value of shares and increase in the number of shares. Hence, no journal entry will be made foe stock split.

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Date Account name Debit Credit (a1) Retained earnings 851,200 Common stock dividend distributable 212,800 Paid in value in excess of par 638,400 (a2) Common stock dividend distribuable 212,800 Common stock 212,800 (b1) Retained earnings 3,040,000   Common stock dividend distributable 3,040,000 (b2) Common stock dividend distributable 3,040,000 Common stock 3,040,000

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