Question

Senior 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 (220,000 shares authorized; 7,000 shares issued), $75 par, $525,000; Paid-In Capital in excess of par— common stock, $105,000; and Retained earnings, $4,200,000. The board of directors declared a 2% stock dividend when the market price of the stock was $100 a share. Senior Life Co. 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.

	Stock Dividends
	Stock Dividends Distributable
	Paid-In Capital in Excess of Par-Common Stock

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Recall that a stock dividend affects only stockholders' equity.

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

	Stock Dividends Distributable
	Common Stock

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Partially correct

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	$

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Identify the balances of all the equity accounts before the stock dividend. What affect does a stock dividend have on the equity accounts? What account(s) would increase and what account(s) would decrease?

Answer 1

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

	Stock Dividends (7000*2%*100)	14000
	Stock Dividends Distributable		10500
	Paid-In Capital in Excess of Par-Common Stock		3500

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

	Stock Dividends Distributable	10500
	Common Stock		10500

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	$630000
Total retained earnings	$4200000
Total stockholders' equity	$4830000

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 (630000+14000)	$644000
Total retained earnings	$4186000
Total stockholders' equity	$4830000

Identify the balances of all the equity accounts before the stock dividend. What affect does a stock dividend have on the equity accounts? What account(s) would increase and what account(s) would decrease?

Total paid in capital account increase but retained earnings account would decrease by same amount $14000