Stockholders Equity and Earnings per Share STK-2) During 2012, P & P Products ma

Question

Stockholders Equity and Earnings per Share

STK-2) During 2012, P & P Products made the following common stock transactions involving class B stock. The common stock has par value of $10.

A. On January 5, P & P Products declared a property dividend of 1,000 shares of their investments in the ABC company stock. The stock has a fair market value of $25 per share. The stock cost P & P Products $20 per share. P & P issued the ABC stock one month later.

B. On February 14, P & P Products declared a 10 % stock dividend. On that date, the market value of the stock was $14. One month later they issued the common stock. Assume that P & P has 92,623 shares of $10 par value common stock outstanding prior to the stock dividend.

C. On August 12th, P & P Products declared a cash dividend of $0.50 per share of common stock. Assume that P & P had 92,623 shares of $10 par value common stock outstanding plus those issued as a result of the 10% stock dividend in part (B). (round your answer)

D. On October 14th, P & P Products issued a 2-for-1 stock split. Assume that the number of shares of common stock outstanding equals the number you used in part ( C).

E. On May 15th, P & P Products issued 5,000 shares of cumulative 8% preferred stock with a par value of $100 for $112 per share.

Required: Prepare any necessary entries for each of the scenarios above.

Explanation / Answer

Answer:

Journal Entries Date Account Title Debit Credit a) Jan-05 By Investments in ABC 5000 {1,000*($25-$20)} To Profit on disposition of Investements 5000 By Retained earnings 25000 (1,000*$25) To Dividends payble 25000 Feb-05 By Dividends Payble 25000 To Investments in ABC 20000 b) Feb-14 By Retained earnings 129668 (9,262*$14) To Common stock dividend distributable 92620 (9,262*$10) To Additional paid up capital - Common stock 37048 (9,262*$4) (92,623 shares*10% = 9,262 shares) Mar-14 By Common stock dividend distributable 92620 To Common stock 92620 c) Aug-12 By Retained earning 50943 (92,623+9,262)*$0.5 To Dividends payble 50943 d) Oct-14 By Common stock of $10 face value 1018850 (92,623+9,262)*$10 To Common stock of $5 face value 1018850 e) May-15 By Cash 560000 (5,000*$112) To Premium on issue of preferred stock 60000 (5,000*$12) To 8% cumulative preferred stock 500000 (5,000*$100)

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