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The Smith Company currently has 25,000 shares of common stock outstanding. The stock has a par...

The Smith Company currently has 25,000 shares of common stock outstanding. The stock has a par value of $6 per share and a market value of $26 per share – in other words, the price of the stock if you want to buy it is $26 per share.

Please make the journal entry required if the company gives the stockholders an 8% stock dividend.
Please make the journal entry required if the company gives the stockholders a 40% stock dividend instead of an 8% stock dividend.
Suppose that instead of giving the stockholders a stock dividend the company decides to do a 3-for-1 stock split.
Is a journal entry needed for a stock split?
What is the balance of the Common Stock account before the stock split?
How many shares of common stock would there be after the stock split?
What would the par value per share be after the stock split?
What is the balance of the Common Stock account after the stock split?
Did the stock split change the balance of the Common stock account?

Solutions

Expert Solution

Account Titles and Explanation Debit Credit
Retained Earnings (8% x 25000 x $26) 52000
Common Stock (8% x 25000 x $6) 12000
Paid-in capital in excess of par-common 40000
(To record distribution of stock dividend)
Account Titles and Explanation Debit Credit
Retained Earnings (40% x 25000 x $6) 60000
Common Stock 60000
(To record distribution of stock dividend)

In case of a small stock dividend (less than 20 to 25%), the market value of the shares being issued is transferred from the retained earnings while for a large stock dividend, the par value of the shares being issued is transferred from the retained earnings to the paid-in capital section of stockholders' equity.

No, a journal entry is not needed for a stock split. Only a memo entry is recorded for stock split reducing the par value of the common stock and increasing the number of common shares outstanding.

Balance of common stock account before the stock split = 25000 x $6 = $150000

Number of shares of common stock after the stock split = 25000 x 3 = 75000

Par value per share after the stock split = $6/3 = $2

Balance of common stock account after the stock split = 75000 x $2 = $150000

No, the stock split did not change the balance of the common stock account.

ekkarill92 answered 2 years ago
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