The board of directors declared a 2% stock dividend when the market price of the
ID: 2500267 • Letter: T
Question
The board of directors declared a 2% stock dividend when the market price of the stock was $135 a share. Osgood reported no income or loss for the current year.
Required:
1. Journalize the following entries:
a. Record the declaration of the dividend, capitalizing an amount equal to market value. For a compound transaction, if an amount box does not require an entry, leave it blank or enter "0".
b. Record the issuance of the stock certificates.
2. Determine the following amounts before the stock dividend was declared:
3. Determine the following amounts after the stock dividend was declared and closing entries were recorded at the end of the year:
Hidea. Record the declaration of the dividend, capitalizing an amount equal to market value. For a compound transaction, if an amount box does not require an entry, leave it blank or enter "0".
Explanation / Answer
a1.
Journalize the entry to record the declaration of the dividend, capitalizing an amount equal to market value.
No. of shares = $10,000,000 / $100 = 100,000 shares
100,000 shares x 2% = 2,000 shares as Stock Dividend
Account Debit Credit
Stock dividends 2,000 shares x $135 $270,000
Stock dividends Distributable 2,000x100 $200,000
Paid in capital in Excess of Par-Common Stock $70,000
______________________________________________________________
a2. Journalize the entry to record the issuance of the stock certificates.
Account Debit Credit
Stock Dividends Distributable $200,000
Common Stock $200,000
_______________________________________________________________
b.
Determine the following amounts before the stock dividend was declared: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders' equity.
Total paid-in capital $12,000,000 ($10M + Excess over par $2M)
Retained earnings $45,000,000
Total stockholders' equity $57,000,000 ($12M + $45M)
c. Determine the following amounts after the stock dividend was declared and closing entries were recorded at the end of the year: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders' equity.
Total paid-in capital $12,270,000 ($12M + $270T)
Total retained earnings $44,730,000 (45,000,000 - $270,000)
Total stockholders' equity $57,000,000
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