Question
In: Accounting
The? stockholders' equity for Heavenly DessertsHeavenly Desserts ?Drive-Ins ?(HDHD?) on JuneJune 1212?, 20152015?, ?follows: Stockholders' Equity...
The? stockholders' equity for
Heavenly DessertsHeavenly Desserts
?Drive-Ins
?(HDHD?)
on
JuneJune
1212?,
20152015?,
?follows:
Stockholders' Equity
Common Stock,$0.10 par, 2, 100,000 shares
authorized,700,000 issued $70,000
Paid-in Capital in excess of par-common 1,506,773
Retained earnings 7,100,000
Accumulated other comprehensive income(loss) (175,000)
Total stockholder's equity $ 8,501,773
On
JuneJune
1212?,
20152015?,
the market price of
HDHD
common stock was
$ 17$17
per share. Assume
HDHD
declared and distributed
aa
1212?%
stock dividend on this date.
|
1. |
Journalize the declaration and distribution of the stock dividend. |
|
2. |
Prepare the? stockholders' equity section of the balance sheet after the stock dividend. |
|
3. |
Why is total? stockholders' equity unchanged by the stock? dividend? |
|
4. |
Suppose
HDHD had a cash balance of$ 560 comma 000$560,000 onJuneJune1313?, 20152015. What is the maximum amount of cash dividendsHDHD can? declare? |
Solutions
Expert Solution
1.
| Entry to record the delcaration and distribution of stock dividend | ||||
| Date | Account Title | Debit | Credit | |
| June.12 | Retained Earnings | 1428000 | ||
| Common stock | 8400 | |||
| Additional paid-in-capital | 1419600 | |||
Working:
| Number of shares outstanding | A | 700000 |
| Stock dividend declared | B | 12% |
| Number of shares for stock dividend (A X B) | C | 84000 |
| Market Price of the stock | D | 17 |
| Value of the stock dividend ( C X D) | E | 1428000 |
2.
| Common stock, $0.10 par, 2,100 shares authorized | 78,400 | |
| 784,000 issued and paid up | ||
| Paid-in-capital in excess of par | 2926373 | |
| Retained Earnings | 5672000 | |
| Accumulated other comprehensive income(loss) | -175000 | |
| Total stockholders' equity | 8501773 | |
3. As the dividends are paid out of the earnings of the company, any distribution of dividend will be made out of the retained earnings. Since the dividend delcared and distributed is a stock dividend, the retained earnings is converted into common stock. Therefore the reduction in retained earnings is offset by the increase in the paid up capital thereby having no eefect on the total stockholders' equity.
4.
Even though the retained earnings balance is $5,672,000 as on June 13, the company can declare a cash dividend of $560,000 as the company's cash balance is $560,000.
ekkarill92 answered 1 year agoRelated Solutions
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