On July 1, Jones Corporation had the following capital structure. Common stock , par $1 ;...

On July 1, Jones Corporation had the following capital structure.

Common stock , par $1 ; 8,000,000 authorized shares, 170,000 issued and outstanding. $170,000

Additional paid in capital. 110,000

Retained Earning ; 190,000

Treasury stock none

Case 1 the board of directores feclaredcavd issued 100 percent stick divend when the stock price was $6 per share.

Case 2 the board of directors voted 2-1 stock split. The stock price prior to the split was $6 per share

Number of outstanding shares before stock transactions for case 1 and 2

Par per share. Case 1 and 2

Common stock account case 1 and 2

Additional cap paid in case 1 and 2

Restained earnings case 1 and 2

Total SE case 1 and 2

Expert Solution

Stock dividend:
When the stock dividend % is more than 20-25%, it is said to be a large stock dividend
It will not affect the par value per share
Here,100 % stock dividend is declared
Hence shares to be issued=Number of shares issued and outstanding100%=170000100%=170000 shares
Stock dividend has to be recorded at par value since it is a case of large stock dividend.So, ignore stock price
Journal entry:
		Debit	Credit
Retained earnings	(100000*$1)	100000
Common stock			100000

Common stock will increase to $270000 (170000+100000)

Stock split:
2-1 stock split means 2 shares are issued for 1 exising share
It will halve the par value
Par value per share=1*1/2=$ 0.50 per share
Number of shars issued and outstanding will be doubled
Number of shares=170000*2/1=340000 shares
Common stock=340000*0.50=$ 170000

				Case 1	Case 2
Number of outstanding shares before stock transactions				170000	170000
Par value per share				$ 1	$ 0.5

Statement of stockholder's equity:
				Case 1	Case 2
Common stock				270000	170000
Additional paid in capital		(No change in both cases)		110000	11000
Retained eanings				90000	190000
				(190000-100000)	(No change)
Stockholder's equity				470000	371000

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