Question

The stockholders’ equity accounts of Ayayai Company have the following balances on December 31, 2017.

Common stock, $3 par, 1,000,000 shares issued and outstanding		$3,000,000
Paid-in-capital in excess of par – common stock		4,500,000
Retained earnings		8,318,000

Shares of Ayayai Company stock are currently selling on the Midwest Stock Exchange at $23.

Prepare the appropriate journal entries for each of the following independent cases.

The stockholders’ equity accounts of Ayayai Company have the following balances on December 31, 2017.

Common stock, $3 par, 1,000,000 shares issued and outstanding		$3,000,000
Paid-in-capital in excess of par – common stock		4,500,000
Retained earnings		8,318,000

Shares of Ayayai Company stock are currently selling on the Midwest Stock Exchange at $23.

Prepare the appropriate journal entries for each of the following independent cases.

1. A stock dividend of 10% is declared and issued.

Account Titles and Explanation Debit Credit

2.A stock dividend of 50% is declared and issued.

Account Titles and Explanation Debit Credit

3. A 2-for-1 stock split is declared and issued.

Account Titles and Explanation Debit Credit

Answer 1

Stock Dividends: Stock dividends are the dividends given to the existing common stockholder's in the form of stock dividends instead of cash. It increases the number of common stock with the shareholders. If the dvidend stock issued is small which is less than 25%, it isto be accounted at market price . If it is more than 25%, it is to be accounted at par value.

Stock Split: Stock split increases the number of shares outstanding and reduces the par value per share while remaing the total par value the same.

1. A stock dividend of 10% is declared and issued.

Account Titles and Explanations	Debit	Credit
Retained Earnings A/c (1,000,000 * 10% * $23)	$2,300,000
Common Stock A/c (1,000,000 *10% * $3)		$300,000
Paid in Capital in excess of par - common stock A/c (1,000,000 *10% * $3)		$2,000,000

Note: Dividend stock issued is below 25% and hence is valued at a market price of $23

2.A stock dividend of 50% is declared and issued.

Account Titles and Explanations	Debit	Credit
Retained Earnings A/c (1,000,000 * 50% * $3)	$1,500,000
Common Stock A/c		$1,500,000

Note: Dividend stock issued is more than 25% and hence is valued at par value of $3

3. A 2-for-1 stock split is declared and issued.

Stock split = Total Outstanding shares * (2 / 1)

= 1,000,000 * 2

Stock split = 2,000,000 shares.

Par share Value after stock split = Value per share after stock split / 2

= $3 / 2

Par share Valueafter stock split = $1.5

Total par value =  Par share Valueafter stock split *Toatl outstanding shares after stock split

= $1.5 * 2,000,000

Total par value = $3,000,000

So, the total par value remains same even after the stoack split as there is no effect. Hence, there is no need for any Journal entry to record at the time of Stock split.