The capital accounts for Alston Market on June 30, 2015 are as follows: Common S

Question

The capital accounts for Alston Market on June 30, 2015 are as follows:

Common Stock, $6 par, 50,000 shares issued and outstanding…………………..$300,000

Paid-in Capital in excess of par……………………………………………………………………..600,000

Retained earnings……………………………………………………………………………………...1,840,000

Shares of the company’s stock are selling at this time at $44. What entries would you make in each of the following cases?

(a) A 10% stock dividend is declared and issued.

(b) A 50% stock dividend is declared and issued.

(c) A 2-for-1 stock split is declared and issued.

Explanation / Answer

Journal Entires

a) A 10% Stock dividend is declared and issued

     On Declaration ( Being a small stock dividend as it is less the 20-25%)

     Retained Earnings                               debit            $220,000 ( 50000*10%= 5000 shares , 5000 * 44 = 220,000)

     Common Stock dividend distributable credit           $220,000 ( 5000 * 44 = 220,000)

On Issue

    Common Stock Dividend Distributable debit           $ 220,000

    Common Stock                                     credit          $ 30,000       ( 5000 * 6 = $30,000)

    Paid in capital in excess of par             credit          $ 190,000     ( 5000 * 38 = $190,000)

b) A 50% Stock dividend is declared and issued

   On Declaration ( Being a large stock dividend as it is more the 20-25%)

     Retained Earnings                              debit      $150,000 ( 50000*50%= 25000 shares , 25000 * 6 = 150,000)

     Common Stock dividend distributable credit    $ 150,000

On Issue

Common Stock dividend distributable dedit    $ 150,000

Common Stock                                    credit   $ 150,000

c) A 2 for 1 stock split is declared and issued

Stock split is recorded by making a memorandum entry only because it does not change the balance of any account. The memorandum entry of Alston Markety for a 2-for-1 stock split will be made as follows:

A 2 for 1 stock stock split will increase the no of shares of common stock outstanding from 50,000 to 100,000 and reduce the par value from $ 6 to $ 3.

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