Question

EX 13-10

Entries for stock dividendsOBJ. 4Senior Life Co. is an HMO for businesses in the Portland area. The following account balances appear on the balance sheet of Senior Life Co.: Common stock (800,000 shares authorized; 500,000 shares issued), $4 par, $2,000,000; Paid-in capital in excess of par—common stock, $1,000,000; and Retained earnings, $33,500,000. The board of directors declared a 2% stock dividend when the market price of the stock was $13 a share. Senior Life Co. reported no income or loss for the current year.

a.Journalize the entries to record (1) the declaration of the dividend, capitalizing an amount equal to market value, and (2) 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.

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.

Answer 1

a )As the company has declared and issue stock dividend and capitalised it at market value, hence common stock and paid in capital in excess of par value will be increase and dividend are declared out of Retaind earning hence it will be decrease .

1)Entry for declaration of stock dividend

		Debit	Credit
	Stock dividend	130000
	Stock dividend distributable		40000
	Paid in capital in excess of par value common stock		90000
	Being Stock dividend declared )

Issue common stock =500000

Divident declare =500000×2%=10000 common stock

Value of Stock divident declared at market price =10000×13 =130000

Par value of common stock =10000×4 =40000

Paid in capital in excess of par value =130000-40000 =90000

2) On issuance of Stock certificate

	Debit	Credit
Stock dividend distributable	40000
Common stock		40000
(Being Stock warrant issue against divident declared)

b) values before stock dividend declare

1)Total paid in capital = Common stock + Paid in capital in excess of par value = 2000000+1000000=$3000,000

2) Retained Earnings= As there is no income it will remains same =$33,500,000

3) Total Stockholder equity = Paid in capital + Retained Earnings = $36,500,00

c) Values after declaration of dividend

As the Stock dividend are declared and issue out of retained earning the total equity will be same are retained earning reduces and capital increases by that amount

1) Paid in capital = $3000000+ (New issue) 40000+ (excess paid in capital over par value) 90000=$3,130,000

2) Retained Earnings =$33,500,000-130,000 =$33,370,000

3) Total Stockholders equity =3,130,000+33,370,000=$36,500,000