Exercise 15-14 The stockholders\' equity accounts of Windsor Company have the fo

Question

Exercise 15-14 The stockholders' equity accounts of Windsor Company have the following balances on December 31, 2017 Common stock, $10 par, 275,000 shares issued and outstanding Paid-in capital in excess of par-common stock Retained earnings $2,750,000 1,300,000 6,150,000 Shares of Windsor Company stock are currently selling on the Midwest Stock Exchange at $34 Prepare the appropriate journal entries for each of the following cases. (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.) (a) (b) (c) A stock dividend of 8% is (1) declared and (2) issued A stock dividend of 100% is (1) declared and (2) issued A 2-for-1 stock split is (1) declared and (2) issued No. Account Titles and Explanation Debit Credit (a) (1) Retained Earnings Common Stock Dividend Distributable Paid-in Capital in Excess of Par- Common Stock (a) (2) Common Stock Dividend Distributable Common Stock (b) (1) Retained Earnings Common Stock Dividend Distributable (b) (2) Common Stock Dividend Distributable Common Stock (c) (1) No Entry No Entry (c) (2) No Entry No Entry

Explanation / Answer

Windsor Company

Journal entries:

Account Titles and Explanation

Debit

Credit

Retained Earnings

(275,000 x 8% x $34)

$748,000

Common Stock Dividend Distributable (275,000 x 8% x $10)

$220,000

Paid-in Capital in Excess of par – Common (275,000 x 8% x $24)

$528,000

(To record declaration of stock dividend - 275,000 x 8% = 22,000 shares; Market value = $34 per share, dividend distributable at $10 per share on 22,000 shares and Paid-in capital in excess of par = $34-$10)

Common Stock Dividend Distributable

$220,000

Common Stock

$220,000

(To record payment of stock dividend)

Account Titles and Explanation

Debit

Credit

Retained Earnings

(275,000 x 100% x $10)

$2,750,000

Common Stock Dividend Distributable (275,000 x 100% x$10)

$2,750,000

(To record declaration of stock dividend - 275,000 x 100% = 275,000 shares, at par value of $10 per share. dividend distributable at $10 per share on 275,000 shares)

Common Stock Dividend Distributable

$2,750,000

Common Stock

$2,750,000

(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 100% 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 $10 to $5 per share and the number of shares issued would double from 275,000 to 550,000. These changes do not alter the account balances.

Account Titles and Explanation

Debit

Credit

Retained Earnings

(275,000 x 8% x $34)

$748,000

Common Stock Dividend Distributable (275,000 x 8% x $10)

$220,000

Paid-in Capital in Excess of par – Common (275,000 x 8% x $24)

$528,000

(To record declaration of stock dividend - 275,000 x 8% = 22,000 shares; Market value = $34 per share, dividend distributable at $10 per share on 22,000 shares and Paid-in capital in excess of par = $34-$10)

Common Stock Dividend Distributable

$220,000

Common Stock

$220,000

(To record payment of stock dividend)

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.