Cornerstones of Financial Accounting
Cornerstones of Financial Accounting
4th Edition
ISBN: 9781337669450
Author: Rich
Publisher: Cengage
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Chapter 10, Problem 85PSA

Common Dividends

Fusion Payroll Service began 2019 with 1,200,000 authorized and 375,000 issued and outstand ing $5 par common shares. During 2019, Fusion entered into the following transactions:

  1. Declared a S0.30 per-share cash dividend on March 10.
  2. Paid the $0.30 per-share dividend on April 10.
  3. Repurchased 8,000 common shares at a cost of $18 each on May 2.
  4. Sold 1.500 unissued common shares for $23 per share on June 9.
  5. Declared a $0.45 per-share cash dividend on August 10.
  6. Paid the $0.45 per-share dividend on September 10.
  7. Declared and paid a 5% stock dividend on October 15 when the market price of the common stock was $25 per share.
  8. Declared a $0.50 per-share cash dividend on November 10.
  9. Paid the $0.50 per-share dividend on December 10.

Required:

  1. Prepare journal entries for each of these transactions. (Note: Round to the nearest dollar.)
  2. Determine the total dollar amount of dividends (cash and stock) for the year.
  3. CONCEPTUAL CONNECTION Determine the effect on total assets and total stockholders’ equity of these dividend transactions.
Expert Solution
Check Mark
To determine

(a)

Introduction:

Dividend is the amount that is paid to the stockholders’ periodically as a return on their investment in the company. Dividend can be made in two forms i.e. Cash Dividend and Stock Dividend.

To prepare:

Journal Entries for the given transactions.

Answer to Problem 85PSA

Journal Entries

S. No. Date Particulars Debit ($) Credit ($)
a. March 10 Retained Earnings Dr.
Dividends Payable		 112,500 112,500
b. April 10 Dividends Payable Dr.
Cash		 112,500 112.500
c. May 2 Treasury Stock Dr.
Cash		 144,000 144,000
d. June 9 Cash Dr.
Common Stock
Additional Paid-in Capital		 34,500 7,500
27,000
e. August 10 Retained Earnings Dr.
Dividends Payable		 165,825 165,825
f. September 10 Dividends Payable Dr.
Cash		 165,825 165,825
g. October 15 Retained Earnings Dr.
Common Stock
Additional Paid-in Capital		 460,625 92,125
368,500
h. November 10 Retained Earnings Dr.
Dividends Payable		 193,463 193,463
(i) December 10 Dividends Payable Dr.
Cash		 193,463 193,463

Explanation of Solution

Given:

1,200,000 shares were authorized and 375,000 were issued and outstanding $5par common shares.

(a) No. of shares issued and outstanding = 375,000

Cash Dividend per share = $0.30

Total cash dividend = No. of shares issued and outstanding × Cash Dividend per share

Total cash dividend = 375,000 × $0.30

Total cash dividend = $112,500

(c) No. of shares repurchased = 8,000

Value of repurchase = $18 per share

Total Value of repurchase of shares = No. of shares repurchased ×Value of repurchase

Total Value of repurchase of shares = 8,000 × $18

Total Value of repurchase of shares = $144,000

(d) No. of shares issued = 1,500

Market value of shares issued = $23

Par Value = $5

Total Market value of shares issued = No. of shares issued × Market value of shares issued

Total Market value of shares issued = 1,500 × $23

Total Market value of shares issued = $34,500

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

Total par value of shares issued = 1,500 × $5

Total par value of shares issued = $7,500

Additional Paid-in Capital = Total Market value of shares issued - Total par value of shares issued

Additional Paid-in Capital = $34,500 - $7,500

Additional Paid-in Capital = $27,000

(e) No. of shares issued and outstanding = 375,000 − 8,000 + 1,500

No. of shares issued and outstanding = 368,500

Cash Dividend per share = $0.45

Total cash dividend = No. of shares issued and outstanding × Cash Dividend per share

Total cash dividend = 368,500 × $0.45

Total cash dividend = $165,825

(g) No. of shares issued and outstanding = 368,500

Stock Dividend = 5%

Stock Dividend = 368,500 × 5%

Stock Dividend = 18,425 shares

Total value of Stock Dividend = 18,425 × $25

Total value of Stock Dividend = $460,625

Total Par Value of Stock Dividend = 18,425 × $5

Total Par Value of Stock Dividend = $92,125

Additional Paid-in Capital = Total value of Stock Dividend - Total Par Value of Stock Dividend

Additional Paid-in Capital = $460,625 - $92,125

Additional Paid-in Capital = $368,500

(h) No. of shares issued and outstanding = 368,500 + 18,425

No. of shares issued and outstanding = 386,925

Cash Dividend per share = $0.50

Total cash dividend = No. of shares issued and outstanding × Cash Dividend per share

Total cash dividend = 386,925 × $0.50

Total cash dividend = $193,463.

Expert Solution
Check Mark
To determine

(b)

Introduction:

Dividend is the amount that is paid to the stockholders’ periodically as a return on their investment in the company. Dividend can be made in two forms i.e. Cash Dividend and Stock Dividend.

To calculate:

Total cash and stock Dividend.

Answer to Problem 85PSA

Total Dividend (stock or cash) Paid during the year was $932,413.

Explanation of Solution

Given:

1,200,000 shares were authorized and 375,000 were issued and outstanding $5par common shares.

As per the given transactions, the dividend (cash or stock) was paid on 4 dates:

Date Type of Dividend Amount ($)
April 10 Cash Dividend 112,500
September 10 Cash Dividend 165,825
October 15 Stock Dividend 460,625
December 10 Cash Dividend 193,463
- Total Dividend Paid (stock or cash) 932,413

Calculations:

1. Dividend paid on April 10:

No. of shares issued and outstanding = 375,000

Cash Dividend per share = $0.30

Total cash dividend = No. of shares issued and outstanding × Cash Dividend per share

Total cash dividend = 375,000 × $0.30

Total cash dividend = $112,500

2. Dividend paid on September 10:

No. of shares issued and outstanding = 375,000 − 8,000 + 1,500

No. of shares issued and outstanding = 368,500

Cash Dividend per share = $0.45

Total cash dividend = No. of shares issued and outstanding × Cash Dividend per share

Total cash dividend = 368,500 × $0.45

Total cash dividend = $165,825

3. Dividend paid on October 15:

No. of shares issued and outstanding = 368,500

Stock Dividend = 5%

Stock Dividend = 368,500 × 5%

Stock Dividend = 18,425 shares

Total value of Stock Dividend = 18,425 × $25

Total value of Stock Dividend = $460,625

Total Par Value of Stock Dividend = 18,425 × $5

Total Par Value of Stock Dividend = $92,125

Additional Paid-in Capital = Total value of Stock Dividend - Total Par Value of Stock Dividend

Additional Paid-in Capital = $460,625 - $92,125

Additional Paid-in Capital = $368,500

4. Dividend paid on December 10:

No. of shares issued and outstanding = 368,500 + 18,425

No. of shares issued and outstanding = 386,925

Cash Dividend per share = $0.50

Total cash dividend = No. of shares issued and outstanding × Cash Dividend per share

Total cash dividend = 386,925 × $0.50

Total cash dividend = $193,463.

Expert Solution
Check Mark
To determine

(c)

Introduction:

Dividend is the amount that is paid to the stockholders’ periodically as a return on their investment in the company. Dividend can be made in two forms i.e. Cash Dividend and Stock Dividend.

To calculate:

Total cash and stock Dividend.

Answer to Problem 85PSA

The net effect of the dividends will be:

  1. Retained Earnings will reduce by cash dividend i.e. $471,788.
  2. Balance in cash account will also reduce by cash dividend i.e. $471,788.

(Rest, stock dividend value will be adjusted by increasing common stock and additional capital, and by decreasing retained earnings by the same amount.).

Explanation of Solution

Given:

1,200,000 shares were authorized and 375,000 were issued and outstanding $5par common shares.

As per the given transactions, the dividend (cash or stock) was paid on 4 dates:

Date Type of Dividend Amount ($)
April 10 Cash Dividend 112,500
September 10 Cash Dividend 165,825
October 15 Stock Dividend 460,625
December 10 Cash Dividend 193,463
- Total Dividend Paid (stock or cash) 932,413

In accounting, every transaction has dual effect.

There are two types of dividend i.e. Stock and Cash Dividend.

  1. The first effect of both the dividends (cash or stock) is on Retained Earnings of the company. The dividend payable amount reduces the balance in retained earnings.
  2. The second effect of the dividend (cash or stock) is on the account through which they are paid.
  3. If cash dividend is paid then the second effect is on cash account as cash in the company decreases.
  4. 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.

Total Cash Dividend = $112,500 + $165,825 + $193,463

Total Cash Dividend = $471,788

Total Stock Dividend = 460,625

Total Dividends Paid = Total Cash Dividend + Total Stock Dividend

Total Dividends Paid = $471,788 + $460,625

Total Dividends Paid = $932,413

This means,

  1. Retained earnings will decrease by Total Dividends Paid i.e $932,413.
  2. Balance in cash account will decrease by total cash dividends paid i.e. $471,788.
  3. Balance in common stock and additional paid in capital account will increase by Total Stock Dividend i.e. 460,625.

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Chapter 10 Solutions

Cornerstones of Financial Accounting

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Dividend explained; Author: The Finance Storyteller;https://www.youtube.com/watch?v=Wy7R-Gqfb6c;License: Standard Youtube License