Concept explainers
(a)
Stock Dividends: It refers to the payment of the dividend to its shareholders by the corporation in the form of shares rather than cash is referred as stock dividend.
Retained earnings: It refers to the amount of earnings that are not paid as dividends to the stockholders. Retained earnings are kept by the corporation for reinvestments, payment of debts, and future growth.
To
(a)
Explanation of Solution
Record the declaration and issuance of stock dividends.
Transaction Number | Account Titles and Explanation | Debit ($) | Credit ($) |
1 | Stock Dividends (2) | 130,000 | |
Common Stock Dividends Distributable (3) | 40,000 | ||
Paid-in Capital in excess of Par Value-Common stock (4) | 90,000 | ||
(To record the declaration of stock dividends) | |||
2 | Stock Dividends Distributable (3) | 40,000 | |
Common Stock | 40,000 | ||
(To record the distribution of stock dividends) |
Table (1)
Compute the number of stock dividends shares declared.
Compute the stock dividends amount payable to common stockholders.
Compute stock dividends distributable value.
Compute paid-in capital in excess of par value-common stock.
Transaction 1: Declared 2% of stock dividends.
- Stock Dividends is a contra-stockholders’ equity account which decreases the stockholders’ equity amount. Therefore, debit Stock Dividends account with $130,000.
- Common Stock Dividends Distributable is a stockholders’ equity account and the amount has increased due to the declaration of stock dividends. Therefore, credit Common Stock Dividends Distributable account with $40,000.
- Paid-in Capital in Excess of Par Value is a stockholders’ equity account and the amount has increased due to increase in capital excess of common stock value. Therefore, credit Paid-in Capital in Excess of Par Value account with $90,000.
Transaction 2: Distribution of stock dividends declared.
- Common Stock Dividends Distributable is a stockholders’ equity account and the amount has decreased due to transfer of Common Stock Dividends Distributable amount to Common Stock account. Therefore, debit Common Stock Dividends Distributable account with $40,000.
- Common Stock is stockholders’ equity account and the amount has increased. Therefore, credit Common Stock account with $40,000.
(b)
(1) Total paid-in capital, (2) total retained earnings, and (3) total stockholders’ equity amount before the declaration of the stock dividends.
(b)
Explanation of Solution
(1)
Determine total paid-in capital amount before the declaration of the stock dividends.
Hence, the total paid-in capital amount before the declaration of the stock dividends is $3,000,000.
(2)
Determine total retained earnings amount before the declaration of the stock dividends.
It is given that SL Company’s retained earnings before the declaration of the stock dividends is $33,500,000.
Hence, the total retained earnings amount before the declaration of the stock dividends is $33,500,000.
(3)
Determine total stockholders’ equity amount before the declaration of the stock dividends.
Hence, the total stockholders’ equityamount before the declaration of the stock dividends is $36,500,000.
(c)
(1) Total paid-in capital, (2) total retained earnings, and (3) total stockholders’ equity amount after the declaration of the stock dividends.
(c)
Explanation of Solution
(1)
Determine total paid-in capital amount after the declaration of the stock dividends.
Hence, the total paid-in capital amount after the declaration of the stock dividends is $3,130,000.
(2)
Determine total retained earnings amount after the declaration of the stock dividends.
Hence, the total retained earnings amount after the declaration of the stock dividends is $33,370,000.
(3)
Determine total stockholders’ equity amount after the declaration of the stock dividends.
Hence, the total stockholders’ equityamount after the declaration of the stock dividends is $36,500,000.
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Chapter 13 Solutions
Accounting
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