Problem 5. On January 1, 2016, Kem Corporation had $1,500,000 of common stock ou
ID: 2509520 • Letter: P
Question
Problem 5. On January 1, 2016, Kem Corporation had $1,500,000 of common stock outstanding that was issued at par and retained earnings of $750.000. The company issued 30,000 shares of common stock at par on July 1 and earned net income of $400,000 for the year. Instructions Journalize the declaration of a 15% stock dividends on December 10, 2016 and the payment of the stock dividends on December 31, 2016, for the following two independent assumptions. (a) Par value is $10 and market value is $12. (b) Par value is $5 and market value is S9.Explanation / Answer
(a) Par value is $10 and market value is $12
If par value is $10, number of stocks outstanding is $1,500,000/10 + 30,000 = 180,000 shares. 15% stock dividend means 27,000 (180,000 x 0.15) new shares.
Dr Retained Earnings (27,000 x $12) $ 324,000
Cr Common Stock Dividend Distributable (27,000 x $10) $ 270,000
Cr Additional Paid-in-Capital (27,000 x $2) $54,000
(b) Par value is $5 and market value is $9.
If par value is $5, number of stocks outstanding is $1,500,000/5 + 30,000 = 330,000 shares. 15% stock dividend means 49,500 (330,000 x 0.15) new shares.
Dr Retained Earnings (49,500 x $9) $ 445,500
Cr Common Stock Dividend Distributable (49,500 x $5) $ 247,500
Cr Additional Paid-in-Capital $ 198,000