Question

Entries for Stock Dividends

Healthy Life Co. is an HMO for businesses in the Fresno area. The following account balances appear on Healthy Life’s balance sheet: Common stock (440,000 shares authorized ; 4,000 shares issued), $100 par, $400,000; Paid-In Capital in excess of par— common stock, $80,000; and Retained earnings, $3,600,000. The board of directors declared a 2% stock dividend when the market price of the stock was $139 a share. Healthy Life reported no income or loss for the current year.

If an amount box does not require an entry, leave it blank. If no entry is required, select "No entry required" from the dropdown.

a1. Journalize the entry to record the declaration of the dividend, capitalizing an amount equal to market value.

a2. Journalize the entry to record the issuance of the stock certificates.

b. Determine the following amounts before the stock dividend was declared: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders' equity.

Total paid-in capital	$
Total retained earnings	$
Total stockholders' equity	$

c. Determine the following amounts after the stock dividend was declared and closing entries were recorded at the end of the year: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders' equity.

Total paid-in capital	$
Total retained earnings	$
Total stockholders' equity

Answer 1

A1. To record declaration of dividend

Retained Earnings                                                  $ 11,120*

Common stock dividend distribution                                                    $ 8,000

Paid – in capital in excess of Par – Common stock                           $ 3,120

(4,000 shares * 2% * $ 139)

A2. To record the issuance of the stock certificates

Common stock dividend distribution                $ 8,000

Common Stock                                                                                           $ 8,000

B. Before stock dividend was declared:

Total Paid – in Capital $ 480,000 (400,000 + 80,000)

Total Retained Earnings                $ 3,600,000

Total Stockholder’s equity           $ 4,080,000 (480,000 + 3,600,000)

C. After stock dividend was declared:                                                                                      

Total Paid – in Capital $ 491,120 (480,000 + 11,120)

Total Retained Earnings                $ 3,588,880 (3,600,000 – 11,120)

Total Stockholder’s equity           $ 4,080,000 (491,120 + 3,588,880)