Question

Listed below are the transactions that affected the shareholders’ equity of Branch-Rickie Corporation during the period 2021–2023. At December 31, 2020, the corporation’s accounts included:

($ in thousands)

Common stock, 114 million shares at $1 par $ 114,000

Paid-in capital—excess of par 684,000

Retained earnings 930,000

a. November 1, 2021, 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.

b. On March 1, 2022, 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 $3.0 million, but were purchased two years previously for $2.6 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.

c. On July 12, 2022, the corporation declared and distributed a 5% common stock dividend (when the market value of the common stock was $22 per share). Cash was paid in lieu of fractional shares representing 700,000 equivalent whole shares.

d. On November 1, 2022, 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.

e. On January 15, 2023, 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 $23 per share.

f. On November 1, 2023, 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 ($ in 000s). Net income was $400 million, $465 million, and $525 million for 2021, 2022, and 2023, respectively.

Answer 1

1. Journal entries

S No	Date	general journal	Dr	Cr
1.	Nov 1.2021	Retained earnings(114,000,000*0.6)	68,400,000
		Dividend payable		68,400,000
		(being dividend declared)
2.	Nov 15.2021	No entry
3.	Dec 1.2021	dividend payable	64,400,000
		Cash		68,400,000
		(being dividend paid)
4.	Mar 1.2022	Investment in bonds of Warner (3,000,000-2,600,000)	4,00,000
		Gain on appreciation		4,00,000
		(Being appreciation of investments recorded)
5.	Mar 1.2022	Retained earnings	3,000,000
		Property dividend payable		3,000,000
		(being property dividend declared )
6.	Mar 13.2022	no entry
7.	Apr 5,2022	property div payable	3,000,000
		Investment in Warner bonds		3,000,000
		(Being payment of property div)
8.	July 12,2022	retained earnings (5,700,000*22)	125,400,000
		Common stock (5,000,000*1)		5,000,000
		Paidup capital in excess of par value (5,000,000*21)		105,000,000
		Cash(7,00,000*22)		15,400,000
		(being declaration and payment of stock dividend recorded)
9.	Nov 1,2022	retained earnings (119,000,000*0.6)	71,400,000
		Dividend payable		71,400,000
		(being dividend declared)
10.	Nov 15 ,2022	no entry
11.	Dec 1,2022	div payable	71,400,000
		Cash		71,400,000
		(being div paid)
12.	Jan 15,2023	Retained earnings (119,000,000*50%*1)	59,500,000
		Common stock		59,500,000
13.	Nov 1,2023	retained earnings (119,000,000+59,500,000*.45)	80,325,000
		Dividend payable		80,325,000
14.	Nov15.2023	no entry
15	Dec 1,2023	div payable	80,325,000
		Cash		80,325,000
		(being dividend paid)

C. No. Of shares outstanding = 114,000,000

Stock dividend 5% = 114,000,000*5% = 5,700,000

Cash for fraction shares 7,00,000 so 5,000,000 will be distributed

D. No of shares = 114,000,000+ 5,000,000 = 119,000,000

2.comparitive statement of shareholders equity

Particulars	common stock	additional paidup capital	RE	Total SH Equity
1-01-2021	114,000	684,000	930,000	17,28,000
Net income			400,000	400,000
Cash div			(68,400)	(68,400)
Dec 31,2021	114,000	684,000	1,261,600	2,059,600
Property div			(3,000)	(3,000)
Common stock div	5,000	105,000	(125,400)	(15,400)
Net income			465,000	465,000
Cash div			(71,400)	(71,400)
Dec31,2022	119,000	789,000	1,526,800	2,434,800
3 for 2 split div	59,500		(59,500)	---
net income			565,000	565000
Cash div			(80,325)	(80,325)
	178,500	789,000	1,951,975	2,919,475