Question

Teal Corporation has outstanding 3,020,000 shares with common stock of a par value of $10 each. The balance in its Retained Earnings account at January 1, 2017, was $24,056,000, and it then had Paid-in Capital in Excess of Par—Common Stock of $4,960,000. During 2017, the company’s net income was $4,713,000. A cash dividend of $0.60 a share was declared on May 5, 2017, and was paid June 30, 2017, and a 6% 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 $29 November 30, 2017 $32 December 31, 2017 $35 (a) Prepare the journal entry to record (1) the declaration and (2) payment of the cash dividend. (b) Prepare the journal entry to record (1) the declaration and (2) distribution of the stock dividend. C)Prepare the stockholders’ equity section (including schedules of retained earnings and additional paid-in capital) of the balance sheet of Teal Corporation for the year 2017 on the basis of the foregoing information. (List items that increase retained earnings first.)

Answer 1

a.1)
Journal entry to record declaration of stock dividend
Date	General Journal	Debit	Credit
5-May	Retained earnings (3020000*0.60)	$1,812,000
	Dividend payable		$1,812,000
	(To record cash dividend declared)
2.
Date	General Journal	Debit	Credit
5-May	Dividend payable	$1,812,000
	Cash		$1,812,000
	(To record cash dividend paid)
b.
Date	General Journal	Debit	Credit
30-Nov	Retained earnings (3020000*6%*32)	$5,798,400
	Paid in capital in excess of par - common stock (3020000*6%*22)		$3,986,400
	Common stock dividend distributable (3020000*6%*10)		$1,812,000
	(To record stock dividend declared)
31-Dec	Common stock dividend distributable	$1,812,000
	Common stock		$1,812,000
The stockholder's equity section as on 31st December 2017 is shown below
Stockholder's equity section as on 31st December 2017
Common stock, $10 par value (3201200 shares issued and outstanding)	$32,012,000
Paid in capital in excess of par - Common stock	$8,946,400
Retained earnings	$21,158,600
Total stockholder's equity	$62,117,000
Schedule of retained earnings
Beginning balance	$24,056,000
Net income	$4,713,000
Cash dividend	-$1,812,000
Stock dividend	-$5,798,400
Ending balance	$21,158,600
Schedule of additional paid in capital
Beginning balance	$4,960,000
Increase due to stock dividend	$3,986,400
Ending balance	$8,946,400