Question

In: Accounting

Issuance, Splits and Dividends Suppose AT7 T had originally issued 200 million shares of common stock,...

1. Issuance, Splits and Dividends
Suppose AT7 T had originally issued 200 million shares of common stock, $1 par, for $15 cash per share many years ago. Prepare the journal entry

Suppose AT&T had retained earnings of $5 billion by December 3 1, 20X2. The board directors declared a two-for-one stock split and immediately exchanged two $.50 par shares for each share outstanding. Prepare the journal entry, if any. Present the stockholders’ equity each share outstanding. Prepare the journal entry, if any* Present the stockholders’ equity section of the balance sheet before and after the split.

Repeat requirement 2, but assume that one additional $j par share was issued by AT&T for each share outstanding (instead of exchanging shares) and accounted for as a two-for-one sock split “effected in the form of a stock dividend.”
What journal entries would be made by the investor who bought 1,000 shares of AT&T common sock and held this investment throughout the time covered in requirements 1,2, and 3?

Expert Solution

Cash A/c Dr.(200 Million*$15) $3000M

To Common Stock A/c(200Million*$1) $200M

To Security Premium A/c(200Million*$14) $2800M

(Being shares Issued)

(Being shares issued @$15 per share)

Retained Earnings Dr. (400M*$.50each) $200M

To Common Stock A/c $200M

(Being 2 shares issued for 1)

(200Million/1*2share each)=400Million Shares

400Million shares*$.50per share

Statement of Equity (Before Split)

Particulars	$ in Million
Equity :-
Common Stock(200Million Shares of $1 each)	200
Reserve & Surplus:-
Securities Premium	2800
Retained Earnings	500
Owners' Equity	3500

Statement of Equity (After Split)

Particulars	$ in Million
Equity :-
Common Stock(200Million share @$1 each)	200
Split up- shares (400Million shares @$0.50each)	200
Reserve & Surplus:-
Securities Premium	2800
Retained Earnings $500 Less:- Shares Issued $200	300
Owners' Equity	3500

Retained Earnings A/c Dr. $200M

To Dividend Payable A/c $200M

(Being dividend due)

($200Million Shares*1 stock split = $200Million Shares)

Dividend Payable A/c Dr. $200M

To Common Stock A/c $200M

(Being stock Dividend issued )

Entries in Book of Investor:-

Requirement 1:-

Investment in AT&T A/c Dr.(1000shares*$15each) $15000

To Cash A/c $15000

(Being shares purchased in AT&T)

Requirement 2:-

In case of receipt of bonus share, no cash flow happened, but only number of shares increased.

So in this case:- NO ENTRY

Requirement 3:-

Investments in AT&T A/c Dr.(1000shares*1stock split) $1000

To Dividend Received A/c $1000

(Being shares received as dividend)

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