Cornerstones of Financial Accounting
Cornerstones of Financial Accounting
4th Edition
ISBN: 9781337690881
Author: Jay Rich, Jeff Jones
Publisher: Cengage Learning
bartleby

Videos

Textbook Question
Book Icon
Chapter 10, Problem 72E

Stock Dividends and Stock Splits

The balance sheet of Castle Corporation includes the following stockholders’ equity section:

Chapter 10, Problem 72E, Stock Dividends and Stock Splits The balance sheet of Castle Corporation includes the following

Required:

  1. Assume that Castle issued 60,000 shares for cash at the inception of the corporation and that no new shares have been issued since. Determine how much cash was received for the shares issued at inception.
  2. Assume that Castle issued 30,000 shares for cash at the inception of the corporation and subsequently declared a 2-for-l stock split. Determine how much cash was received for the shares issued at inception.
  3. Assume that Castle issued 57,000 shares for cash at the inception of the corporation and that the remaining 3,000 shares were issued as the result of stock dividends when the stock was selling for $53 per share. Determine how much cash was received for the shares issued at inception.
Expert Solution
Check Mark
To determine

(a)

Introduction:

Common stock is issued by the company to raise finance using equity. It isissued to the investors (who are regarded as stockholders or shareholders, once common stock are issued to them) with no obligation to pay dividend periodically. Common stock is also referred to as common shares.

To calculate:

Cash received on issue of shares.

Answer to Problem 72E

$491,800 was received as cash at the inception of corporation.

Explanation of Solution

Given:

The following equity statement:

Particulars $
Common stock, $2 par, 80,000 shares authorized, 60,000 issued and outstanding 120,000
(+) Additional Paid-in capital − common stock 371,800
Total Capital Stock 491,800
Retained Earnings 173,000
Total Stockholders’ equity 664,800

At the time of inception:

No. of shares issued = 60,000

Par value = $2

Total Par Value of shares issued = No. of shares issued × Par value

Total Par Value of shares issued = 60,000 × $2

Total Par Value of shares issued = $120,000

Additional Paid in capital −common stock = $371,800

Journal Entries

Date Particulars Debit ($) Credit ($)
No date given Cash Dr.
Common Stock
Additional Paid in capital −common stock
(Issue of shares at the inception of corporation.)
491,800 120,000
371,800
Expert Solution
Check Mark
To determine

(b)

Introduction:

A common stock is issued by the company to raise finance using equity. It is issued to the investors (who are regarded as stockholders or shareholders, once common stock is issued to them) with no obligation to pay dividend periodically. Common stock is also referred to as common shares.

To calculate:

Cash received on issue of shares and split stock.

Answer to Problem 72E

$467,210 was received as cash at the inception of corporation.

Explanation of Solution

Given:

The following equity statement:

Particulars $
Common stock, $2 par, 80,000 shares authorized, 60,000 issued and outstanding 120,000
(+) Additional Paid-in capital − common stock 371,800
Total Capital Stock 491,800
Retained Earnings 173,000
Total Stockholders’ equity 664,800

At the time of inception:

No. of shares issued = 60,000

Par value = $2

Total Par Value of shares issued = No. of shares issued × Par value

Total Par Value of shares issued = 60,000 × $2

Total Par Value of shares issued = $120,000

Additional Paid in capital −common stock = $371,800

Journal Entries

Date Particulars Debit ($) Credit ($)
No date given Cash Dr.
Common Stock
Additional Paid in capital −common stock
(Issue of shares at the inception of corporation.)
491,800 120,000
371,800

Before stock split:

No. of shares issued = 60,000

Par value = $2

After, 2-for1 stock split:

No. of shares issued = 60,000×2

No. of shares issued = 120,000

Par value = $22

Par value = $1

No journal entry is recorded on stock. Though,the common stock capital remains same, only its structure i.e. no. of shares outstanding and par value of shares change.

Thus, the cash received from issues of shares and immediate stock split will be same as the cash received from issues of shares.

Expert Solution
Check Mark
To determine

(c)

Introduction:

A common stock is issued by the company to raise finance using equity. It is issued to the investors (who are regarded as stockholders or shareholders, once common stock is issued to them) with no obligation to pay dividend periodically. Common stock is also referred to as common shares.

To calculate:

Cash received on issues of shares and stock dividend thereof.

Answer to Problem 72E

$491,800 was received as cash at the inception of corporation.

Explanation of Solution

Given:

The following equity statement:

Particulars $
Common stock, $2 par, 80,000 shares authorized, 60,000 issued and outstanding 120,000
(+) Additional Paid-in capital − common stock 371,800
Total Capital Stock 491,800
Retained Earnings 173,000
Total Stockholder’s equity 664,800

At the time of inception:

No. of shares issued = 57,000

Par value = $2

Total Par Value of shares issued = No. of shares issued × Par value

Total Par Value of shares issued = 57,000 × $2

Total Par Value of shares issued = $114,000

Additional Paid in capital (for 60,000) common stock = $371,800

Additional Paid in capital (for 57,000) common stock = $371,80060,000×57,000

Additional Paid in capital (for 57,000) common stock = $353,210

Journal Entries

Date Particulars Debit ($) Credit ($)
No date given Cash Dr.
Common Stock
Additional Paid in capital −common stock
(Issue of shares at the inception of corporation.)
467,210 114,000
353,210

Stock Dividend = 3,000 shares

Market Value of shares = $53

Par Value of shares = $2

Total Par value of stock dividend = No. of shares issued as stock dividend × Par value

Total Par value of stock dividend = 3,000 × $2

Total Par value of stock dividend = $6,000

Total Market value of stock dividend = No. of shares issued as stock dividend × Market value

Total Market value of stock dividend = 3,000 × $53

Total Market value of stock dividend = $159,000

Additional Paid in capital = Total Market value of stock dividend - Total Par value

Additional Paid in capital = $159,000 - $6,000

Additional Paid in capital = $153,000

Journal Entries

Date Particulars Debit ($) Credit ($)
No date given Retained Earnings Dr.
Common Stock
Additional Paid in capital −common stock
(Issue of shares at the inception of corporation.)
159,000 6,000
153,000

The first effect of both dividends (cash and stock) is on Retained Earnings of the company. If stock dividend is paid then, the second effect is on common stock and additional paid in capital account as new shares are issued as dividends which further increase the balance of these accounts.

Thus, stock dividend don’t involve any cash transaction and the amount received at the time of inception remains $467,210 (i.e. the amount received on issues of shares).

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Which option is correct?
Mr. Husker's Tuxedos Corp. ended the year 2017 with an average collection period of 35 days. The firm's credit sales for 2017 were $63.9 million. What is the year-end 2017 balance in accounts receivable for Mr. Husker's Tuxedos? Step by step answer to this
Cost of goods sold is a variable cost in this company

Chapter 10 Solutions

Cornerstones of Financial Accounting

Ch. 10 - 11. Describe how cumulative preferred stock...Ch. 10 - Prob. 12DQCh. 10 - 13. What balance sheet accounts are affected by...Ch. 10 - 14. What is the difference between par value and...Ch. 10 - Prob. 15DQCh. 10 - Prob. 16DQCh. 10 - Prob. 17DQCh. 10 - Prob. 18DQCh. 10 - Prob. 19DQCh. 10 - Prob. 20DQCh. 10 - Prob. 21DQCh. 10 - Prob. 22DQCh. 10 - Prob. 23DQCh. 10 - Prob. 24DQCh. 10 - Prob. 25DQCh. 10 - Prob. 26DQCh. 10 - Prob. 27DQCh. 10 - Prob. 28DQCh. 10 - Prob. 29DQCh. 10 - Prob. 30DQCh. 10 - Prob. 31DQCh. 10 - Prob. 32DQCh. 10 - Prob. 33DQCh. 10 - Prob. 34DQCh. 10 - Which of the following is not a component of...Ch. 10 - Which of the following statements is true? The...Ch. 10 - Authorized stock represents the: number of shares...Ch. 10 - Prob. 4MCQCh. 10 - Prob. 5MCQCh. 10 - Ames Corporation repurchases 10,000 shares of its...Ch. 10 - With regard to preferred stock, its stockholders...Ch. 10 - Prob. 8MCQCh. 10 - Prob. 9MCQCh. 10 - A company would repurchase its own stock for all...Ch. 10 - Prob. 11MCQCh. 10 - Prob. 12MCQCh. 10 - Prob. 13MCQCh. 10 - Prob. 14MCQCh. 10 - When a company declares a cash dividend, which of...Ch. 10 - Prob. 16MCQCh. 10 - Prob. 17MCQCh. 10 - The balance of the $2.50 par value Common Stock...Ch. 10 - When a company declares a 3-for-l stock split, the...Ch. 10 - Shea Company has 100,000 shares of 6%, S50 par...Ch. 10 - RVR Enterprises shows net income of $1 00,000 for...Ch. 10 - Comprehensive income: includes transactions that...Ch. 10 - Prob. 23MCQCh. 10 - Prob. 24MCQCh. 10 - Prob. 25CECh. 10 - Recording the Sale of Common Stock Plymouth...Ch. 10 - Calculating the Number of Shares Issued Castalia...Ch. 10 - Prob. 28CECh. 10 - Prob. 29CECh. 10 - Prob. 30CECh. 10 - Prob. 31CECh. 10 - Cash Dividends King Tut Corporation issued 19,000...Ch. 10 - Prob. 33CECh. 10 - Prob. 34CECh. 10 - Preferred and Common Stock Dividends Barstow...Ch. 10 - Preferred Stock Dividends Seashell Corporation has...Ch. 10 - Stockholder Profitability Ratios The following...Ch. 10 - Stockholder Payout Ratios The following...Ch. 10 - Prob. 39BECh. 10 - Recording the Sale of Common and Preferred Stock...Ch. 10 - Prob. 41BECh. 10 - Calculating the Number of Shares Issued Castanet...Ch. 10 - Prob. 43BECh. 10 - Accounting for Treasury Stock Paris Corporation...Ch. 10 - Treasury Stock Refer to the information for...Ch. 10 - Prob. 46BECh. 10 - Cash Dividends Cyprus Corporation issued 12,000...Ch. 10 - Prob. 48BECh. 10 - Augusta Corporation reported the following...Ch. 10 - Preferred and Common Stock Dividends Brookshed...Ch. 10 - Prob. 51BECh. 10 - Prob. 52BECh. 10 - Prob. 53BECh. 10 - Stockholder Payout Rations Super Duper Corporation...Ch. 10 - Prob. 55BECh. 10 - Prob. 56ECh. 10 - Outstanding Stock Lars Corporation shows the...Ch. 10 - Capital Stock Refer to the information for Stahl...Ch. 10 - Preparation of Stockholders Equity Section Refer...Ch. 10 - Issuing Common Stock Carmean Products Inc. sold...Ch. 10 - Issuing and Repurchasing Stock Mohawk Company had...Ch. 10 - Prepare the Stockholders' Equity Section Renee...Ch. 10 - Prepare the Stockholders' Equity Section Wildcat...Ch. 10 - Prob. 64ECh. 10 - Treasury Stock Transactions Garrett Inc. had no...Ch. 10 - Cash Dividends on Common Stock Berkwild Company is...Ch. 10 - Cash Dividends on Common and Preferred Stock Lemon...Ch. 10 - Prob. 68ECh. 10 - Stock Dividends Crystal Corporation has the...Ch. 10 - Stock Dividend The balance sheet of Cohen...Ch. 10 - Prob. 71ECh. 10 - Stock Dividends and Stock Splits The balance sheet...Ch. 10 - Preferred Dividends Eastern Inc.s equity includes...Ch. 10 - Cumulative Preferred Dividends Capital stock of...Ch. 10 - Retained Earnings Tigress Manufacturing had...Ch. 10 - Prob. 76ECh. 10 - Prob. 77ECh. 10 - Ratio Analysis Consider the following information....Ch. 10 - Ratio Analysis MJO Inc. has the following...Ch. 10 - Stockholders' Equity Terminology A list of terms...Ch. 10 - Prob. 81PSACh. 10 - Prob. 82PSACh. 10 - Treasury Stock Transactions Hansen Inc. engaged in...Ch. 10 - Statement of Stockholders' Equity At the end of...Ch. 10 - Common Dividends Fusion Payroll Service began 2019...Ch. 10 - Problem 10-86A Stock Dividends and Stock Splits...Ch. 10 - Prob. 87PSACh. 10 - Ratio Analysis Consider the following information...Ch. 10 - Prob. 81PSBCh. 10 - Prob. 82PSBCh. 10 - Treasury Stock Transactions Bentonite Adhesives...Ch. 10 - Statement of Stockholders' Equity At the end of...Ch. 10 - Common Dividends Thompson Payroll Service began in...Ch. 10 - Prob. 86PSBCh. 10 - Prob. 87PSBCh. 10 - Prob. 88PSBCh. 10 - Prob. 89.1CCh. 10 - Prob. 89.2CCh. 10 - Prob. 90.1CCh. 10 - Prob. 90.2CCh. 10 - Prob. 91CCh. 10 - Prob. 92.1CCh. 10 - Prob. 92.2CCh. 10 - Prob. 92.3CCh. 10 - Prob. 92.4CCh. 10 - Prob. 92.5CCh. 10 - Prob. 93.1CCh. 10 - Prob. 93.2CCh. 10 - Prob. 93.3CCh. 10 - Prob. 93.4CCh. 10 - Prob. 93.5CCh. 10 - Prob. 93.6CCh. 10 - Prob. 94.1CCh. 10 - Prob. 94.2CCh. 10 - Prob. 94.3CCh. 10 - Prob. 94.4CCh. 10 - Prob. 94.5CCh. 10 - Prob. 94.6CCh. 10 - Prob. 95.1CCh. 10 - Prob. 95.2C
Knowledge Booster
Background pattern image
Accounting
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.
Recommended textbooks for you
Text book image
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
Text book image
Financial Accounting
Accounting
ISBN:9781305088436
Author:Carl Warren, Jim Reeve, Jonathan Duchac
Publisher:Cengage Learning
Text book image
Financial Accounting
Accounting
ISBN:9781337272124
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Cengage Learning
Text book image
Financial And Managerial Accounting
Accounting
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:Cengage Learning,
Text book image
College Accounting, Chapters 1-27 (New in Account...
Accounting
ISBN:9781305666160
Author:James A. Heintz, Robert W. Parry
Publisher:Cengage Learning
Text book image
Century 21 Accounting Multicolumn Journal
Accounting
ISBN:9781337679503
Author:Gilbertson
Publisher:Cengage
Financial instruments products; Author: fi-compass;https://www.youtube.com/watch?v=gvxozM3TUIg;License: Standard Youtube License