Question

a company has the following at January 1, 2018

2,000,000 shares of common stock issued and $1 par outstanding 4,000,000 shares authorized

Additional paid in capital $5,750,000

retained earnings $12,345,000

During 2018 the following happened

Net income: $6,789,000

cash dividend declared May 15: $.70 per share

cash dividends paid on Jun 30th

stock dividends declared on November 30th : 17%

stock dividend distributed on 12/31

the market price of the stock has been $36 all year

Prepare journal entries to record cash and stock dividends

prepare a owners equity section of the balance sheet of 12/31/2018

Answer 1

Journal entries

Date	Title	Debit	Credit
15-May	Cash dividends ($0.70*2,000,000)	$    1,400,000
	Dividend payable		$    1,400,000
	(To record declaration of cash dividend)
30-Jun	Dividend payable	$    1,400,000
	Cash		$    1,400,000
30-Nov	Stock dividends (2,000,000*17%*$36)	$ 12,240,000
	Dividend distributable (2,000,000*17%*$1)		$        340,000
	Additional paid in capital		$ 11,900,000
	(To record declaration of stock dividend))
12-Dec	Dividend distributable	$        340,000
	Common stock		$        340,000
	(To record issue of stock dividend)

Stockholders equity
As at 31 December 2018
Paid-in capital
Common stock, $1 par, 4,000,000 shares authorised, 2,340,000 shares issued and outstanding	$    2,340,000
Additional paid in capital - Common stock ($5,750,000+$11,900,000)	$ 17,650,000
Total paid in capital		$ 19,990,000
Retained earnings ($12,345,000+$6,789,000-$1,400,000-$12,240,000)		$    5,494,000
Total stockholders equity		$ 25,484,000

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