In: Accounting
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 (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.
Required:
A. | Journalize the entries to record (1) the declaration of the dividend on December 1, capitalizing an amount equal to market value, and (2) the issuance of the stock certificates on December 31. Refer to the Chart of Accounts for exact wording of account titles. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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.
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Solution A:
Journal Entries | |||||||
DATE | DESCRIPTION | POST. REF. | DEBIT | CREDIT | ASSETS | LIABILITIES | EQUITY |
1-Dec | Stock dividends Dr (500000*2%*$13) | $130,000.00 | -$130,000.00 | ||||
To Stock dividend distributable (500000*2%*$4) | $40,000.00 | $40,000.00 | |||||
To Paid-In Capital in Excess of Par-Common Stock (500000*2%*$9) | $90,000.00 | $90,000.00 | |||||
(To record stock dividend declared) | |||||||
31-Dec | Stock dividend Distributable Dr | $40,000.00 | -$40,000.00 | ||||
To Common Stock | $40,000.00 | $40,000.00 | |||||
(To record issue of stock certificates) |
Solution B:
Computation - Before stock dividend declared | |
Particulars | Amount |
Total paid in capital ($2,000,000 + $1,000,000) | $3,000,000.00 |
Total retained earnings | $33,500,000.00 |
Total stockholder's equity | $36,500,000.00 |
Solution C:
Computation - After stock dividend declared | |
Particulars | Amount |
Total paid in capital ($2,040,000 + $1,090,000) | $3,130,000.00 |
Total retained earnings | $33,370,000.00 |
Total stockholder's equity | $36,500,000.00 |