The stockholders\' equity section of Jun Company\'s balance sheet as of April 1

Question

The stockholders' equity section of Jun Company's balance sheet as of April 1 follows. On April 2, Jun declares and distributes a 7% stock dividend. The stock's per share market value on April 2 is $12 (prior to the dividend). Common stock-$4 par value, 495,000 shares authorized, 260,000 shares issued and outstanding Paid-in capital in excess of par value, common stock Retained earnings Total stockholders' equity $1,300,000 610,000 893,000 $2,803,000 a. (2 points) Prepare the journal entry to record the stock dividend. b. (2 points) Prepare the stockholders' equity section immediately after the stock dividend. Jun Company Stockholders' Equity April 2 (after stock dividend) Common Stock Paid-in capital in excess of par value, common stock Retained Earnings Total Stockholders' Equity

Explanation / Answer

Note:

The par value of the common stock should be $5 (not $4 as given in the question)---$1300000/260000 = $5. The solution is worked out for par value of $5.

a) JOURNAL ENTRY: Retained earnings (260000*7%*12) 218400 Common stock, $5 par (260000*7%*$5) 91000 Paid in capital in excess of par, common stock 127400 b) STOCK HOLDERS' EQUITY SECTION AFTER STOCK DIVIDEND: Common stock, $5 par, 495000 shares authorized, 278200 shares issued and outstanding 1391000 Paid in capital in excess of par, common stock 737400 Retained earnings 674600 Total stockholders' equity 2803000

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