Question

Listed below are the transactions that affected the shareholders’ equity of Branch-Rickie Corporation during the period 2018–2020. At December 31, 2017, the corporation’s accounts included: ($ in 000s)

Common stock, 105 million shares at $1 par $ 105,000

Paid-in capital—excess of par 624,000

Retained earnings 840,000

November 1, 2018, the board of directors declared a cash dividend of $0.60 per share on its common shares, payable to shareholders of record November 15, to be paid December 1.

On March 1, 2019, the board of directors declared a property dividend consisting of corporate bonds of Warner Corporation that Branch-Rickie was holding as an investment. The bonds had a fair value of $1.9 million, but were purchased two years previously for $1.7 million. Because they were intended to be held to maturity, the bonds had not been previously written up. The property dividend was payable to shareholders of record March 13, to be distributed April 5.

On July 12, 2019, the corporation declared and distributed a 5% common stock dividend (when the market value of the common stock was $23 per share). Cash was paid in lieu of fractional shares representing 250,000 equivalent whole shares.

On November 1, 2019, the board of directors declared a cash dividend of $0.60 per share on its common shares, payable to shareholders of record November 15, to be paid December 1.

On January 15, 2020, the board of directors declared and distributed a 3-for-2 stock split effected in the form of a 50% stock dividend when the market value of the common stock was $24 per share.

On November 1, 2020, the board of directors declared a cash dividend of $0.45 per share on its common shares, payable to shareholders of record November 15, to be paid December 1.

Required:

1. Prepare the journal entries that Branch-Rickie recorded during the three-year period for these transactions.

2. Prepare comparative statements of shareholders’ equity for Branch-Rickie for the three-year period. Net income was $355 million, $420 million, and $480 million for 2018, 2019, and 2020, respectively.

Answer 1

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Part -1 Journal Entries:
Date	Account	Debit	Credit
Nov 1 2018	Retained Earnings	$        63,000,000
	Dividend Payable		$ 63,000,000
	(0.60*105000000)
Dec 1 2018	Dividend Payable	$        63,000,000
	Cash		$ 63,000,000
Mar 1 2019	Investment in Warner Bonds	$             200,000
	Gain on Appreciation of Investments		$        200,000
	(1.9m-1.7m)
Mar 1 2019	Retained Earning	$          1,900,000
	Property Dividend Payable		$     1,900,000
Apr 5 2019	Property Dividend Payable	$          1,900,000
	Investment in Warner Bonds		$     1,900,000
Jul 12 2019- Working	No of Shares issued	(105000000*5%)	5,250,000
Jul 12 2019	Retained Earning	$      120,750,000		(105000000*5%)*23
	Common Stock		$     5,000,000	5000000*1
	Paid in Capital, excess of par		$110,000,000	5000000*(23-1)
	Cash		$     5,750,000	250000*23
Nov 1 2019	Retained Earnings	$        66,000,000		(105m+5m)*0.60
	Dividend Payable		$ 66,000,000
Dec 1 2019	Dividend Payable	$        66,000,000
	Cash		$ 66,000,000
Jan 15 2020	Retained Earning	$        55,000,000		(110m*50%*1)
	Common Stock		$ 55,000,000
	(Since stock divi is more than 25%, will be recorded at par)
Nov 1 2020	Retained Earnings	$        74,250,000		(105m+5m+55m)*0.45
	Dividend Payable		$ 74,250,000
Dec 1 2020	Dividend Payable	$        74,250,000
	Cash		$ 74,250,000
Part 2	000
		Common Stock	Additional PIC	Retained Earning	Total
January 1, 2018		$             105,000	$        624,000	$                       840,000	$1,569,000
Net Income				$                       355,000	$   355,000
Cash Dividends				$                        -63,000	$    -63,000
Dec 31 2018		$             105,000	$        624,000	$                    1,132,000	$1,861,000
Property Dividend				$                          -1,900	$      -1,900
Common Stock Dividend		$                  5,000	$        110,000	$                      -120,750	$      -5,750
Net Income				$                       420,000	$   420,000
Cash Dividends				$                        -66,000	$    -66,000
Dec 31 2019		$             110,000	$        734,000	$                    1,363,350	$2,207,350
3 for 2 split-dividend		$               55,000		$                        -55,000	$              -
Net Income				$                       480,000	$   480,000
Cash Dividends				$                        -74,250	$    -74,250
Dec 31 2020		$             165,000	$        734,000	$                    1,714,100	$2,613,100