(Stock and Cash Dividends) Earnhart Corporation has outstanding 3,000,000 shares of common stock with a par value of $10 each. The balance in its Retained Earnings account at January 1, 2017, was $24,000,000, and it then had Paid-in Capital in Excess of Par—Common Stock of $5,000,000. During 2017, the company’s net income was $4,700,000. 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 adviseon the proper accounting treatment of the stock dividend.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 $31 November 30, 2017 $34 December 31, 2017 $38 Instructions(a) Prepare the journal entry to record the declaration and payment of the cash dividend.(b) Prepare the journal entry to record the declaration and distribution of the stock dividend.(c) Prepare the stockholders’ equity section (including schedules of retained earnings and additional paid-in capital) of the balance sheet of Earnhart Corporation for the year 2017 on the basis of the foregoing information. Draft a note to the financial statements setting forth the basis of the accounting for the stock dividend, and add separately appropriatecomments or explanations regarding the basis chosen.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Concept explainers

Question

(Stock and Cash Dividends) Earnhart Corporation has outstanding 3,000,000 shares of common stock with a par value of $10 each. The balance in its Retained Earnings account at January 1, 2017, was $24,000,000, and it then had Paid-in Capital in Excess of Par—Common Stock of $5,000,000. During 2017, the company’s net income was $4,700,000. 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.
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	$31
November 30, 2017	$34
December 31, 2017	$38

Instructions
(a) Prepare the journal entry to record the declaration and payment of the cash dividend.
(b) Prepare the journal entry to record the declaration and distribution of the stock dividend.
(c) Prepare the stockholders’ equity section (including schedules of retained earnings and additional paid-in capital) of the balance sheet of Earnhart Corporation for the year 2017 on the basis of the foregoing information. Draft a note to the financial statements setting forth the basis of the accounting for the stock dividend, and add separately appropriate
comments or explanations regarding the basis chosen.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 3 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions