Question

The Coldwater Corporation has the following accounts in its stockholders’ equity section at the beginning of 2013:

Preferred stock, $50 par value, 7% cumulative and nonparticipating, 5,000 shares ........................$ 250,000

Common Stock, $1 par value, 100,000 shares authorized. 50,000 shares outstanding ...................... 50,000
Paid-in Capital in Excess of Par – Common ..................................................................... 550,000
Paid-in Capital in Excess of Par – Preferred ..................................................................... 25,000
Retained Earnings ................................................................................................. $2,300,000

During 2013, Coldwater Corp. declared and distributed the following dividends in the order as follows:

• - 10% (small) stock dividends on common stock when current market price per share is $14

• - Cash dividends on preferred (last year’s dividends in arrears) and common shares at $3 per share

• - 30% (large) stock dividends on common stock when current market price per share is $10
  
  
  Please prepare journal entries for each transaction (1) as of declaration date and (2) distribution date

Answer 1

Date	Account title	Debit	credit
a-1	Stock dividend (5000*14)	70000
	common stock distributable (5000*1)		5000
	Paid-in Capital in Excess of Par – Common		65000
a-2	common stock distributable	5000
	common stock		5000
b-1	Cash dividend	200000
	Dividend payable -preferred stock		35000
	Dividend payable -common stock		165000
b-2	Dividend payable -preferred stock	35000
	Dividend payable -common stock	165000
	cash		200000
c-1)	stock dividend	16500
	common stock distributable (16500*1)		16500
c-2)	common stock distributable	16500
	common stock		16500

working :

a)Number of shares issued as stock dividend = number of common shares outstanding * % of stock dividend

       = 50000 * 10%

       = 5000 shares

b)Preferred dividend = Par value *preferred dividend rate

               = 250000*7%

               = 17500 per year

Total preferred dividend paid = 17500 (prior year) +17500 (current year) = 35000

Total common shares outstanding = 50000 (beginning) +5000 Number of shares issued as stock dividend

               55000

c)Number of shares issued as stock dividend=Total common shares outstanding in part b* % of large stock dividend

      = 55000*30%

         = 16500 shares

     

common stock dividend= 55000*3 =165000