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On January 1, 2021, Gerlach Inc. had the following account balances in its shareholders' equity accounts....

On January 1, 2021, Gerlach Inc. had the following account balances in its shareholders' equity accounts.

Common stock, $1 par, 252,000 shares issued $ 252,000
Paid-in capital—excess of par, common 504,000
Paid-in capital—excess of par, preferred 110,000
Preferred stock, $100 par, 11,000 shares outstanding 1,100,000
Retained earnings 2,200,000
Treasury stock, at cost, 5,200 shares 26,000


During 2021, Gerlach Inc. had several transactions relating to common stock.

January 15: Declared a property dividend of 100,000 shares of Slowdown Company (book value $10.2 per share, fair value $9.10 per share).
February 17: Distributed the property dividend.
April 10: A 2-for-1 stock split was declared and distributed on outstanding common stock and effected in the form of a stock dividend. The fair value of the stock was $4 on this date.
July 18: Declared and distributed a 3% stock dividend on outstanding common stock; fair value per share, $5.
December 1: Declared a 50 cents per share cash dividend on the outstanding common shares.
December 20: Paid the cash dividend.

Required:

  • Declared a property dividend of 100,000 shares of Slowdown Company (book value $10.20 per share, fair value $9.10 per share).
  • Record the declaration of property dividend.
  • Distributed the property dividend.
  • A 2-for-1 stock split was declared and distributed on outstanding common stock and effected in the form of a stock dividend. The fair value of the stock was $4 on this date.
  • Declared and distributed a 3% stock dividend on outstanding common stock; fair value per share, $5.
  • Declared a 50 cents per share cash dividend on the outstanding common shares.
  • Paid the cash dividend.

Solutions

Expert Solution

Date Account Debit Credit
Jan-15 Investment in Slowdown Co [(10.2 - 9.1) * 100000] 110000
Gain on Investment 110000
Retained earnings (10.2 * 100000) 1020000
Property dividend payable 1020000
Feb-17 Property dividend payable 1020000
Investment in Slowdown Co 1020000
Apr-10 No entry
Jul-18 Retained earnings (493600 * 3% * 5) 74040
Common stock 14808
Paid in capital in excess of par 59232
Dec-01 Retained earnings (508408 * 0.50) 254204
Dividend payable 254204
Dec-20 Dividend payable 254204
Cash 254204

Workings:

Opening number of shares = 252000 - 5200 = 246800

Number of shares after stock-split = 246800 * 2 = 493600

Number of shares after stock dividend = 493600 + 14808 = 508408

ekkarill92 answered 2 years ago
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