Stock Dividends and Stock Splits
The
Required:
- 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.
- 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.
- 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.
(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 =
Total Par Value of shares issued =
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 |
(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 =
Total Par Value of shares issued =
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 =
No. of shares issued = 120,000
Par value =
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.
(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 =
Total Par Value of shares issued =
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 =
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 =
Total Par value of stock dividend =
Total Par value of stock dividend = $6,000
Total Market value of stock dividend =
Total Market value of stock dividend =
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?
Chapter 10 Solutions
Cornerstones of Financial Accounting
- The following selected accounts appear in the ledger of EJ Construction Inc. at the beginning of the current fiscal year: During the year, the corporation completed a number of transactions affecting the stockholders equity. They are summarized as follows: a. Issued 500,000 shares of common stock at 8, receiving cash. b. Issued 10,000 shares of preferred 1% stock at 60. c. Purchased 50,000 shares of treasury common for 7 per share. d. Sold 20,000 shares of treasury common for 9 per share. e. Sold 5,000 shares of treasury common for 6 per share. f. Declared cash dividends of 0.50 per share on preferred stock and 0.08 per share on common stock. g. Paid the cash dividends. Instructions Journalize the entries to record the transactions. Identify each entry by letter.arrow_forwardSelected stock transactions The following selected accounts appear in the ledger of Parks Construction Inc. at the beginning of the current year: During the year, the corporation completed a number of transactions affecting the stockholders equity. They are summarized as follows: a. Issued 400,000 shares of common stock at 11, receiving cash. b. Issued 5,000 shares of preferred 2% stock at 90. c. Purchased 150,000 shares of treasury common for 10 per share. d. Sold 80,000 shares of treasury common for 13 per share. e. Sold 20,000 shares of treasury common for 9 per share. f. Declared cash dividends of 1.50 per share on preferred stock and 0.06 per share on common stock. g. Paid the cash dividends. Instructions Journalize the entries to record the transactions. Identify each entry by letter.arrow_forwardNutritious Pet Food Companys board of directors declares a cash dividend of $1.00 per common share on November 12. On this date, the company has issued 12,000 shares but 2,000 shares are held as treasury shares. What is the journal entry to record the declaration of this dividend?arrow_forward
- STOCK SUBSCRIPTIONS AND TREASURY STOCK Nash Roth formed a corporation and had the following organization costs and stock transactions during the year: June 30 Incurred the following costs of incorporation: Incorporation fees 800 Attorney's fees 9,000 Promotion fees 8,000 July 15 Issued 7,000 shares of 10 par common stock for 73,000 cash. Aug. 1 Received subscriptions for 8,000 shares of 10 par common stock for 81,500. 15 Issued 16,000 shares of 10 par common stock in exchange for a building and fixtures with a fair market value of 165,000. 31 Received a payment of 51,500 for the common stock subscription. Sept. 3 Purchased 2,000 shares of its own 10 par common stock for 11 a share. 18 Received the balance in full for the common stock subscription and issued the stock. 30 Sold 800 shares of its treasury stock for 11.50 a share. Oct. 15 Issued 3,000 shares of 40 par, 5% preferred stock in exchange for land with a fair market value of 125,000. 31 Sold 400 shares of its treasury stock for 10.75 a share. REQUIRED Prepare journal entries for these transactions.arrow_forwardOutstanding Stock Lars Corporation shows the following information in the stockholders equity section of its balance sheet: The par value of common stock is S5, and the total balance in the Common Stock account is $225,000. There are 13,000 shares of treasury stock. Required: What is the number of shares outstanding? Use the following information for Exercises 10-58 and 10-59: Stahl Company was incorporated as a new business on January 1, 2019. The company is authorized to issue 600,000 shares of $2 par value common stock and 80,000 shares of 6%, S20 par value, cumulative preferred stock. On January 1, 2019, the company issued 75,000 shares of common stock for $15 per share and 5,000 shares of preferred stock for $25 per share. Net income for the year ended December 31, 2019, was $500,000.arrow_forwardChen Corporation began 2012 with the following stockholders equity balances: The following selected transactions and events occurred during the year: a. Issued 10,000 shares of common stock for 60,000. b. Purchased 1,200 shares of treasury stock for 4,800. c. Sold 2,000 shares of treasury stock for 11,000. d. Generated net income of 94,000. e. Declared and paid the full years dividend on preferred stock and a dividend of 1.00 per share on common stock outstanding at the end of the year. Chen Corporation maintains several paid-in capital accounts (Paid-in Capital in Excess of Par, Paid-in Capital from Treasury Stock, etc.) in its ledger, but combines them all as Additional paid-in capital when preparing financial statements. Open the file STOCKEQ from the website for this book at cengagebrain.com. Enter the formulas in the appropriate cells on the worksheet. Then fill in the columns to show the effect of each of the selected transactions and events listed earlier. Enter your name in cell A1. Save the completed worksheet as STOCKEQ2. Print the worksheet. Also print your formulas. Check figure: Total stockholders equity balance at 12/31/12 (cell G21). 398,800.arrow_forward
- Chen Corporation began 2012 with the following stockholders equity balances: The following selected transactions and events occurred during the year: a. Issued 10,000 shares of common stock for 60,000. b. Purchased 1,200 shares of treasury stock for 4,800. c. Sold 2,000 shares of treasury stock for 11,000. d. Generated net income of 94,000. e. Declared and paid the full years dividend on preferred stock and a dividend of 1.00 per share on common stock outstanding at the end of the year. Chen Corporation maintains several paid-in capital accounts (Paid-in Capital in Excess of Par, Paid-in Capital from Treasury Stock, etc.) in its ledger, but combines them all as Additional paid-in capital when preparing financial statements. In the space provided below, prepare the stockholders equity section of Chen Corporations balance sheet as of December 31, 2012. Use proper headings and provide full disclosure of all appropriate information. Chens corporate charter authorizes the issuance of 1,000 shares of preferred stock and 100,000 shares of common stock.arrow_forwardAuthorized stock represents the: number of shares that are currently held by stockholders. number of shares that have been sold. number of shares that have been repurchased by the corporation. maximum number of shares that can be issued.arrow_forwardSTOCK SUBSCRIPTIONS AND TREASURY STOCK Rogers Hart formed a corporation and had the following organization costs and stock transactions during the year: June 30 Incurred the following costs of incorporation: July 15 Issued 8,000 shares of 10 par common stock for 82,000 cash. Aug. 1 Received subscriptions for 10,000 shares of 10 par common stock for 101,500. 15 Issued 10,000 shares of 10 par common stock in exchange for a building with a fair market value of 104,800. 31 Received a payment of 51,500 for the common stock subscription. Sept. 3 Purchased 1,000 shares of its own 10 par common stock for 11 a share. 18 Received the balance in full for the common stock subscription and issued the stock. 30 Sold 500 shares of its treasury stock for 11.70 a share. Oct. 15 Issued 4,000 shares of 25 par, 8 % preferred stock in exchange for land with a fair market value of 105,000. 31 Sold 500 shares of its treasury stock for 10.50 a share. REQUIRED Prepare journal entries for these transactions.arrow_forward
- Aggregate Mining Corporation was incorporated five years ago. It is authorized to issue 500,000 shares of $100 par value 8% cumulative preferred stock. It is also authorized to issue 750,000 shares of $6 par value common stock. It has issued 50,000 of the common shares and 1,000 of the cumulative preferred shares. The corporation has never declared a dividend and the preferred shares are one years in arrears. Aggregate Mining has the following transactions this year: Journalize these transactions. For the stock split, show the calculation for how many shares are outstanding after the split and the par value per share after the splitarrow_forwardFollowing is the shareholders equity section of All-Wood Doors on a day a. Use the financial statement template below to show the financial statement effects of the following dividend events. (Assume that the events are independent.) (1) Cash dividend declaration and payment of 1 per share (3) Property dividend declaration and payment of shares representing a short-term investment in Screen Products, Ltd., with a fair value of 10,000 (3) 10% stock dividend (4) 100% stock dividend (5) 3-for-1 stock split (6) 1-for-2 reverse stock split b. Which events changed the book value of common equity? Under what conditions will these events lead to future increases and decreases in ROE?arrow_forwardThe charter of a corporation provides for the issuance of 114,615 shares of common stock. Assume that 41,097 shares were originally issued and 3,520 were subsequently reacquired. What is the amount of cash dividends to be paid if a $2 per share dividend is declared? a.$75,154 b.$3,520 c.$114,615 d.$41,097arrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningCollege Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeFinancial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage LearningIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning