Question

Pranks, Inc. is a manufacturer of joke and novelty products for perpetrators of practical jokes. The corporation has paid several cash dividends throughout Year 6, the current year. It is also declaring a stock dividend to its stockholders as the calendar year-end approaches. You’ve been brought in as a consultant to assist with this process, and also to help determine whether some missing information can be determined before the distribution of the stock dividend is made. The company has two classes of stock: common stock and cumulative preferred stock.

You’ve been able to retrieve the following information so far:

Number of common shares authorized						800,000
Number of common shares issued						650,000
Par value of common shares						$20
Par value of cumulative preferred shares						$30
Paid-in capital in excess of par-common stock						$7,000,000
Paid-in capital in excess of par-preferred stock						$0
Total retained earnings before the stock dividend is declared						$33,500,000
No treasury shares have been reissued.
	Total Cash	Preferred	Dividends		Common			Dividends
Year	Dividends	Total	Per Share		Total			Per Share
Year 1	40,000	40,000	0.20		0			0.00
Year 2	72,000	72,000	0.36		0			0.00
Year 3	113,000	68,000	0.34		45,000			0.09
Year 4	135,000	60,000	0.30		75,000			0.15
Year 5	150,000	60,000	0.30		90,000			0.18
Year 6	210,000	60,000	0.30		150,000			0.30

The company declared a 3% common stock dividend on December 1, and would like you to compute the following pieces of missing information. The market value of the common shares is $25.00 on December 1, and is $32.00 on the actual distribution date of the stock, December 31.

Total paid-in capital before the stock dividend =       ?

Total retained earnings before the stock dividend = 33,500,000

Total stockholders’ equity before the stock dividend =         ?

Total paid-in capital after the stock dividend =        ?

Total retained earnings after the stock dividend =     ?

Total stockholders’ equity after the stock dividend =      ?

Please Help?

Answer 1

Answer 1	Total paid-in capital before the stock dividend	24,000,000
Answer 2	Total retained earnings before the stock dividend	33,500,000
Answer 3	Total stockholders’ equity before the stock dividend	57,500,000
Answer 4	Total paid-in capital after the stock dividend	24,487,500
Answer 5	Total retained earnings after the stock dividend	33,012,500
Answer 6	Total stockholders’ equity after the stock dividend	57,500,000

Journal entry

Date	Account titles and explanation	Debit	Credit
December 1	Stock dividends [This is closed to retained earnings] (19500*25)	487,500
	Paid in capital in excess of par value - common stock (19500*(25-20))		97,500
	Common stock dividend distributable (19500*20)		390,000
	(To record Stock Dividend Declared.) (dividend shares issued = 650000*3%=19500)
December 31	Common stock dividend distributable	390,000
	Common stock		390,000
	(To record Stock Dividend Distributed.)

Calculation

Number of Preferred stock (60000/0.30)	200,000
	Before the stock dividend	Stock dividend	After the stock dividend
Common stock (650000*20)	13,000,000	390,000	13,390,000
Preferred stock (200000*20)	4,000,000		4,000,000
Paid in capital in excess of par value - common stock	7,000,000	97,500	7,097,500
Total paid in capital	24,000,000		24,487,500
Retained earnings	33,500,000	(487,500)	33,012,500
Total Stockholder's equity	57,500,000	-	57,500,000