Question

The stockholders’ equity accounts of Carla Company have the following balances on December 31, 2020.

Common stock, $10 par, 288,000 shares issued and outstanding		$2,880,000
Paid-in capital in excess of par—common stock		1,180,000
Retained earnings		5,750,000

Shares of Carla Company stock are currently selling on the Midwest Stock Exchange at $38.

Prepare the appropriate journal entries for each of the following cases. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

(a)		A stock dividend of 7% is (1) declared and (2) issued.
(b)		A stock dividend of 100% is (1) declared and (2) issued.
(c)		A 2-for-1 stock split is (1) declared and (2) issued.

No.	Account Titles and Explanation	Debit	Credit
(a) (1)	enter an account title for case A to record the declaration of stock dividends	enter a debit amount	enter a credit amount
	enter an account title for case A to record the declaration of stock dividends	enter a debit amount	enter a credit amount
	enter an account title for case A to record the declaration of stock dividends	enter a debit amount	enter a credit amount
(a) (2)	enter an account title for case A to record the issuance of stock dividends	enter a debit amount	enter a credit amount
	enter an account title for case A to record the issuance of stock dividends	enter a debit amount	enter a credit amount
(b) (1)	enter an account title for case B to record the declaration of stock dividends	enter a debit amount	enter a credit amount
	enter an account title for case B to record the declaration of stock dividends	enter a debit amount	enter a credit amount
(b) (2)	enter an account title for case B to record the issuance of stock dividends	enter a debit amount	enter a credit amount
	enter an account title for case B to record the issuance of stock dividends	enter a debit amount	enter a credit amount
(c) (1)	enter an account title for case C to record the declaration of the stock split	enter a debit amount	enter a credit amount
	enter an account title for case C to record the declaration of the stock split	enter a debit amount	enter a credit amount
(c) (2)	enter an account title for case C to record the issuance of the stock split	enter a debit amount	enter a credit amount
	enter an account title for case C to record the issuance of the stock split	enter a debit amount	enter a credit amount

Answer 1

No.	Account title and explanation	Debit	Credit
a (1)	Retained earnings	$ 766,080
	Common stock divdend distributable		$201,600
	Paid in capital excess of par-common stock		$ 564,480
a (2)	Common stock dividend distributable	$201,600
	Common stock		$ 201,600
b (1)	Retained earnings	$2,880,000
	Common stock divdend distributable		$2,880,000
b (2)	Common stock dividend distributable	$2,880,000
	Common stock		$2,880,000
c (1)	No entry required
c (2)	No entry required

Notes-

1.Stock dividend of 7% declared, when stock divdiend declared is small, i.e. it is less than 20-25%, we record common stock at its par value and the difference between par value and fair value in paid in capital in excess of par and retained earnings is debited at fair value of common stock

Stock dividend= 288,000*7%=20,160 shares

Common stock credited at= 20,160*10=$ 201,600

Fair value = $38

So excess of par credited to paid in capital= 38-10= $28

Paid in capital creditde= 20,160*$28=$ 564,480

Retained earnings debited= 20,160*38=$766,080

2.

100% stock dividend declared so 100% stock dividend is large dividend and is recorded by debiting retained earnings and crediting common stock at par value

Stock dividend= 288,000*100%

= 288,000

Amount credited to common stock= 288000*10= $2,880,000

3

No entry is required for stock split as it do not effect the ledger balnce of any account.Only the number of shares are increase and the par value is decreased

IN the given case stock split increase the number of shares by 288,000 and decrease the par value from $10 to $5

Only a memorandum entry is required mentioning number of shares increased from 288,000 to 576,000 shares and par value is reduced to $5.

No journal entry required as ledger balances not effected.

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