The following account balances appear on the balance sheet of Osgood Industries:
ID: 2372155 • Letter: T
Question
The following account balances appear on the balance sheet of Osgood Industries:
Common stock (300,000 shares authorized, $100par) : $10,000,000
Paid in capital excess of par- common stock: $2,000,000
Retained earnings: &45,000,000
The board of directors declared a 2% stock dividend when the market price of the stock was $135 a share. Osgood reported no income or loss for the current year.
Required:
(1) jurnalize the entities to record
A. The declaration of the dividend, capitalizing an amount equal to market value ; and
B. the issuance of stock certificates
(2) determine the following amounts before the stock dividend was declared:
A. Total paid in capital
B. total retained earnings; and
C. Total stockholders equity
(3)determine the following amounts after the stock dividend was declared and closing entries were recorded at the end of the year
A. Total paid in capital
B. total retained earnings ; and
C. Total stockholders equity
Please show all work email me if needed simeonex3@aim.com
Explanation / Answer
a1. Journalize the entry to record the declaration of the dividend, capitalizing an amount equal to market value.
Number of shares of common stock outstanding 10,000,000 / 100 = 100,000
Dr Stock Dividends 250,000 (100,000 x 2% x 125 market value)
Cr Stock Dividends Distributable 200,000 (100,000 x 2% x 100 par value)
Cr Additional Paid-In Capital, Common Stock 50,000
a2. Journalize the entry to record the issuance of the stock certificates.
Dr Stock Dividends Distributable 200,000
Cr Common Stock 200,000
b. Determine the following amounts before the stock dividend was declared: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders' equity.
Total paid-in capital $12,000,000 (10,000,000 + 2,000,000)
Total retained earnings $45,000,000
Total stockholders' equity $57,000,000 (12,000,000 + 45,000,000)
c. Determine the following amounts after the stock dividend was declared and closing entries were recorded at the end of the year: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders' equity.
Total paid-in capital $12,250,000 (12,000,000 + 250,000 market value of stock dividend)
Total retained earnings $44,750,000 (45,000,000 - 250,000)
Total stockholders' equity $57,000,000
This problem shows that a stock split has no effect on total stockholders' equity.