In: Accounting
Problem #4
Pedroni Corporation has outstanding 3,000,000 shares of common stock with a par value of $10 ea. The balance in its Retained Earnings account at January 1, 2017, was $24,000,000, and it then had Paid-in-Capital in Excess of Par-Common Stock of $5,000,000. During 2017, the company’s net income was $4,700,000. A cash dividend of $.60 a share was declared on May 5, 2017, and was paid on June 30, 2017, and a 65 stock dividend was declared on November 30, 2017, and distributed to stockholders of record at the close of business on December 31, 2017. You have been asked to advise on the proper accounting treatment of the stock dividend.
The existing stock of the company is quoted on a national stock exchange. The market price of the stock has been as follows:
October 31, 2017 $31
November 30, 2017 $34
December 31, 2017 $38
Instructions:
Solution:
Requirement:A Cash Dividend
Date | Description | Debit | Credit |
May. 5 | Cash Dividend [3000000*0.6] | $ 1,800,000 | |
Dividend Payable-Common Stock | $ 1,800,000 | ||
( To record dividend declared) | |||
June. 30 | Dividend Payable-Common Stock | $ 1,800,000 | |
Cash | $ 1,800,000 | ||
( To record dividend paid) |
Requirement:B: Stock Dividend 65 Shares
Date | Description | Debit | Credit |
Nov. 30 | Retained Earnings [65 Shares *$ 34] | $ 2,210 | |
Common Stock Dividend Distributable [65 Shares *$ 10] | $ 650 | ||
Paid-In-Capital Excess of Par-Common Stock [65 Shares *$ 24] | $ 1,560 | ||
( To record declaration of stock dividend) | |||
Dec.31 | Common Stock Dividend Distributable [65 Shares *$ 10] | $ 650 | |
Common Stock | $ 650 | ||
( To record distribution of common stock) |
Notes:
1) For 65 shares of stock dividend, marjet price on Nov. 30 will be taken.
Requirement:C
Pedroni Corporation | |
[Stockholders` Equity Section] | |
31-Dec-17 | |
Stockholder's equity : | |
Common Stock [30000000+650] | $ 30,000,650 |
Paid-in capital in excess of par-common stock [5000000+1560] | $ 5,001,560 |
Total paid in capital | $ 35,002,210 |
Retained Earnings [24000000+4700000-1800000-2210] | $ 26,897,790 |
Total stockholder's Equity | $ 61,900,000 |