Question

1. Entries for Stock Dividends

   Advanced Life Co. is an HMO for businesses in the Albuquerque area. The following account balances appear on the balance sheet of Advanced Life Co.: Common stock (600,000 shares authorized; 400,000 shares issued), $8 par, $3,200,000; Paid-in capital in excess of par—common stock, $800,000; and Retained earnings, $25,600,000. The board of directors declared a 2% stock dividend when the market price of the stock was $19 a share. Advanced Life Co. reported no income or loss for the current year.

2. a2. Journalize the entry to record the issuance of the stock certificates. If an amount box does not require an entry, leave it blank.
3. Determine the following amounts before the stock dividend was declared: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders' equity. a1. Journalize the entry to record the declaration of the dividend, capitalizing an amount equal to market value. If an amount box does not require an entry, leave it blank.

Answer 1

Amount before stock dividend was declared :

Stockholder's equity

Common stock $ 8 par = 3,200,000

Paid in capital in excess of par - common stock = 800,000

Total paid in capital = 4,000,000

Retained earnings = 25,600,000

Total stockholder's equity = 29,600,000

Note - 1. Total paid in capital = common stock + paid in capital in excess of par

2. Total stockholder's equity = common stock + paid in capital in excess of par + retained earnings

Entry for stock dividend declaration :

Debit    Credit

Retained earnings $ 152,000

Common stock dividend distributable $ 64,000

Paid in capital excess of par $ 88,000

Note 1. retained earnings amount in entry = number of new shares ( 2 % of 400000 = 8000 ) * market price($19)

2. Common stock dividend distributable amount in entry = number of new shares i.e. 8000 shares * par value ( $ 8 )

3. Paid in capital excess of par = difference of above two amounts

Entry for stock dividend distribution -

Debit    Credit

Common stock dividend distributable $ 64,000

Common stock $ 64,000

For issuance of stock certificate no separate entry is passed. but if issuance of stock certificate means stock dividend distribution then the entry for it has been stated above.