Question

Problem 18-5 (Algo) Shareholders' equity transactions; statement of shareholders' equity [LO18-6, 18-7, 18-8]

Listed below are the transactions that affected the shareholders’ equity of Branch-Rickie Corporation during the period 2021–2023. At December 31, 2020, the corporation’s accounts included:

	($ in thousands)
Common stock, 101 million shares at $1 par	$	101,000
Paid-in capital—excess of par		600,000
Retained earnings		800,000

1. November 1, 2021, the board of directors declared a cash dividend of $0.60 per share on its common shares, payable to shareholders of record November 15, to be paid December 1.
2. On March 1, 2022, the board of directors declared a property dividend consisting of corporate bonds of Warner Corporation that Branch-Rickie was holding as an investment. The bonds had a fair value of $1.4 million, but were purchased two years previously for $1.2 million. Because they were intended to be held to maturity, the bonds had not been previously written up. The property dividend was payable to shareholders of record March 13, to be distributed April 5.
3. On July 12, 2022, the corporation declared and distributed a 6% common stock dividend (when the market value of the common stock was $18 per share). Cash was paid in lieu of fractional shares representing 60,000 equivalent whole shares.
4. On November 1, 2022, the board of directors declared a cash dividend of $0.60 per share on its common shares, payable to shareholders of record November 15, to be paid December 1.
5. On January 15, 2023, the board of directors declared and distributed a 3-for-2 stock split effected in the form of a 50% stock dividend when the market value of the common stock was $19 per share.
6. On November 1, 2023, the board of directors declared a cash dividend of $0.45 per share on its common shares, payable to shareholders of record November 15, to be paid December 1.

Required:
1. Prepare the journal entries that Branch-Rickie recorded during the three-year period for these transactions.
2. Prepare comparative statements of shareholders’ equity for Branch-Rickie for the three-year period ($ in 000s). Net income was $335 million, $400 million, and $460 million for 2021, 2022, and 2023, respectively.

Answer 1

Answer :

(1) Preparation of the journal entries :

No.	Date	General Journal	Debit	Credit
1	1-Nov-21	Retained earnings	60,600,000
		Cash dividends payable		60,600,000
2	15-Nov-21	No Journal entry required
3	1-Dec-21	Cash dividends payable	60,600,000
		Cash		60,600,000
4	1-Mar-22	Investment in Warner bonds	200,000
		Gain on appreciation of investment		200,000
5	1-Mar-22	Retained earnings	1,400,000
		Property dividends payable		1,400,000
6	13-Mar-22	No journal entry required
7	5-Apr-22	Property dividends payable	1,400,000
		Investment in Warner bonds		1,400,000
8	12-Jul-22	Retained earnings	109,080,000
		Common stock		6,000,000
		Paid-in capital—excess of par		102,000,000
		Cash		1,080,000
9	1-Nov-22	Retained earnings	64,200,000
		Cash dividends payable		64,200,000
10	15-Nov-22	No journal entry required
11	1-Dec-22	Cash dividends payable	64,200,000
		Cash		64,200,000
12	15-Jan-23	Paid-in capital—excess of par	53,500,000
		Common stock		53,500,000
13	1-Nov-23	Retained earnings	72,225,000
		Cash dividends payable		72,225,000
14	15-Nov-23	No journal entry required
15	1-Dec-23	Cash dividends payable	72,225,000
		Cash		72,225,000

(2) Preparation of  comparative statements of shareholders’ equity :

BRANCH-RICKIE CORPORATION
Statement of Shareholders' Equity
For the Years Ended Dec. 31,2021,2022, and 2023
	Common Stock	Additional Paid-in Capital	Retained Earnings	Total Shareholders' Equity
Jan.1, 2021	101,000	600,000	800,000	1,501,000
Net income			335,000	335,000
Cash dividends			(60,600)	(60,600)
Dec. 31, 2021	101,000	600,000	1,074,400	1,775,400
Property dividends			(1,400)	(1,400)
Common stock dividend	6,000	102,000	(109,080)	(1,080)
Net income			400,000	400,000
Cash dividends			(64,200)	(64,200)
Dec. 31, 2022	107,000	702,000	1,299,720	2,108,720
3-for-2 split effected in the form of a stock dividend	53,500	(53,500)
Net income			460,000	460,000
Cash dividends			(72,225)	(72,225)
Dec. 31, 2023	160,500	648,500	1,687,495	2,496,495