Problem 15-11 Bramble Corporation has outstanding 3,003,000 shares with common s
ID: 2511122 • Letter: P
Question
Problem 15-11 Bramble Corporation has outstanding 3,003,000 shares with common stock of a par value of 10 each. The balance in its Retained Earnings account at January 1, 2017, was $24,142,000, and it then had Paid-in Capital in Excess of Par-Common Stock of $5,049,000. During 2017, the company's net income was $4,737,000. 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 Statement of Retained Earnings 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 November 30, 2017 $32 December 31, 2017 Prepare the journal entry to record (1) the declaration and (2) payment of the cash (a) dividend. (b) Prepare the journal entry to record (1) the declaration and (2) distribution of the stock (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) No. Date Account Titles and Explanation Debit Credit BRAMBLE CORPORATION Prepare the stockholders' equity section (including schedules of retained earnings and additional paid-in capital) of the balance sheet of Bramble Corporation for the year 2017 on the hasis.at the foregoing information. (List items that increase retained earnings first.) Click if you would like to Show Work for this question: Open Show Work Schedule of Additional Paid-in CapitalExplanation / Answer
Dividends can be declared out of Retained Earnings or Current Year Earnings of the company.
a. Journal entries for declaration and payment of cash dividend is as under:
Date
Particulars
Debit Amount
Credit Amount
May 5, 2017
Retained Earnings (3,003,000 * 0.60)
1,801,800
Distributable Dividend
1,801,800
( Dividend being paid out of retained earnings and hence retained earning debited to reduce its balance and distributable dividend being liability credited )
June 30, 2017
Distributable Dividend
1,801,800
Bank
1,801,800
(Liability of distributable dividend now cancelled by paying dividend and hence distributable dividend debited and bank credited as bank balance reduced)
b. Journal Entries for Declaration and payment of stock dividend :
Balance in Retained Earnings as of November 30, 2017 = $24,142,000 -$1,801,800 = $22,340,200
Stock Dividend to be declared = No of shares on 30/11/2017 * Market Price * 6% = 3,003,000 * 32* 6% = $5,765,760
No of shares to be issued = Dividend Amount/Market Price per share on 30 November, 2017 = $5,765,760/32 = 180,180 shares
Journal Entries:
Date
Particulars
Debit Amount
Credit Amount
Nov 30, 2017
Retained Earnings (180,180 * 32)
5,765,760
Distributable Dividend
5,765,760
( Dividend being paid out of retained earnings and hence retained earning debited to reduce its balance and distributable dividend being liability credited )
Dec 31, 2017
Distributable Dividend
5,765,760
To Common Stock (180,180 *10)
1,801,800
To Paid in Capital in Excess of Par
3,963,960
(Liability of distributable dividend now cancelled by paying dividend and hence distributable dividend debited, Common Stock account crediting for reflecting issue of new stock and Paid in Capital In Excess of Par credited for reflecting premium amount)
Shareholder’s Equity Section of Balance Sheet of Bramble Corporation for the Year 2017 :
Shareholder’s Equity
Common Stock(Par value $10 per share)
At the beginning of the year = $30,030,000
Issued during the year as dividends = $ 1,801,800
Balance as at year end = $3,183,800
Additional Paid In Capital
At the beginning of the year = $5,049,000
Received on shares Issued during the year = $3,963,960
Balance as at year end = $9,012,960
Retained Earnings
At the beginning of the year = $24,142,000
Add: Net Earnings during the year = $4,737,000
Less: Used for Cash Dividend = $1,801,800
Less: Used for Stock Dividend = $5,765,760
Balance as at year end = $21,311,440
Date
Particulars
Debit Amount
Credit Amount
May 5, 2017
Retained Earnings (3,003,000 * 0.60)
1,801,800
Distributable Dividend
1,801,800
( Dividend being paid out of retained earnings and hence retained earning debited to reduce its balance and distributable dividend being liability credited )
June 30, 2017
Distributable Dividend
1,801,800
Bank
1,801,800
(Liability of distributable dividend now cancelled by paying dividend and hence distributable dividend debited and bank credited as bank balance reduced)