The stockholders’ equity accounts of Louis Company have the following balances o

Question

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

Cash
Common Stock
Common Stock Dividend Distributable
Computers
Dividends Payable
No Entry
Paid-in Capital in Excess of Par - Common Stock
Paid-in Capital in Excess of Par - Preferred Stock
Paid-in Capital in Excess of Stated Value - Common Stock
Preferred Stock
Retained Earnings
Treasury Stock

Common stock, $3 par, 1,000,000 shares issued and outstanding Paid-in-capital in excess of par - common stock Retained earnings $3,000,000 5,700,000 7,714,000 Shares of Concord Company stock are currently selling on the Midwest Stock Exchange at $24. Prepare the appropriate journal entries for each of the following independent cases. A stock dividend of 10% is declared and issued. (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.) Account Titles and Explanation Debit Credit

Explanation / Answer

Louis Company

Journal entries:

Account Titles and Explanation

Debit

Credit

Retained Earnings

(1,000,000 x 10% x $24)

$2,400,000

Common Stock Dividend Distributable (1,000,000 x 10% x $3)

$300,000

Paid-in Capital in Excess of par – Common ($1,000,000 x $21)

$2,100,000

(To record declaration of stock dividend - 1,000,000 x 10% = 100,000 shares; Market value = $24 per share, dividend distributable at $3 per share on 100,000 shares and Paid-in capital in excess of par = $24-$3)

Common Stock Dividend Distributable

$300,000

Common Stock

$300,000

(To record payment of stock dividend)

Account Titles and Explanation

Debit

Credit

Retained Earnings

(1,000,000 x 50% x $3)

$1,500,000

Common Stock Dividend Distributable (1,000,000 x 50% x$3)

$1,500,000

(To record declaration of stock dividend - 1,000,000 x 50% = 500,000 shares, at par value of $3 per share. dividend distributable at $3 per share on 500,000 shares)

Common Stock Dividend Distributable

$1,500,000

Common Stock

$1,500,000

(To record payment of stock dividend)

Note:

Large stock dividends are those that are more than 20 to 25% of the total value of outstanding shares. The present case of 50% stock dividend declared and issued is regarded as large stock dividend.

Issue of large stock dividends are assumed to bring down the value of each share and hence the market value is not considered. The stock dividend is valued at par value and hence no Paid-in Capital account exists for the given case.

No journal entry is needed.

A stock split does not affect the total par value of shares. The number of shares multiplied by par value per share does not change and hence no journal entry is needed.

A split is recorded through a memorandum notation.

A stock split of 2 for 1 reduces the par value of $3 to $1.50 per share and the number of shares issued would double from 1,000,000 to 2,000,000. These changes do not alter the account balances.

Account Titles and Explanation

Debit

Credit

Retained Earnings

(1,000,000 x 10% x $24)

$2,400,000

Common Stock Dividend Distributable (1,000,000 x 10% x $3)

$300,000

Paid-in Capital in Excess of par – Common ($1,000,000 x $21)

$2,100,000

(To record declaration of stock dividend - 1,000,000 x 10% = 100,000 shares; Market value = $24 per share, dividend distributable at $3 per share on 100,000 shares and Paid-in capital in excess of par = $24-$3)

Common Stock Dividend Distributable

$300,000

Common Stock

$300,000

(To record payment of stock dividend)

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