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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:
- Declared a S0.30 per-share cash dividend on March 10.
- Paid the $0.30 per-share dividend on April 10.
- Repurchased 8,000 common shares at a cost of $18 each on May 2.
- Sold 1.500 unissued common shares for $23 per share on June 9.
- Declared a $0.45 per-share cash dividend on August 10.
- Paid the $0.45 per-share dividend on September 10.
- Declared and paid a 5% stock dividend on October 15 when the market price of the common stock was $25 per share.
- Declared a $0.50 per-share cash dividend on November 10.
- Paid the $0.50 per-share dividend on December 10.
Required:
- Prepare
journal entries for each of these transactions. (Note: Round to the nearest dollar.) - Determine the total dollar amount of dividends (cash and stock) for the year.
- CONCEPTUAL CONNECTION Determine the effect on total assets and total stockholders’ equity of these dividend transactions.
(a)
Introduction:
Dividend is the amount that is paid to the stockholders’ periodically as a return on their investment in the company. Dividend can be made in two forms i.e. Cash Dividend and Stock Dividend.
To prepare:
Journal Entries for the given transactions.
Answer to Problem 85PSA
Journal Entries
| S. No. | Date | Particulars | Debit ($) | 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 =
Total cash dividend =
Total cash dividend = $112,500
(c) No. of shares repurchased = 8,000
Value of repurchase = $18 per share
Total Value of repurchase of shares =
Total Value of repurchase of shares =
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 =
Total Market value of shares issued =
Total Market value of shares issued = $34,500
Total par value of shares issued =
Total par value of shares issued =
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 =
Total cash dividend =
Total cash dividend = $165,825
(g) No. of shares issued and outstanding = 368,500
Stock Dividend = 5%
Stock Dividend =
Stock Dividend = 18,425 shares
Total value of Stock Dividend =
Total value of Stock Dividend = $460,625
Total Par Value of Stock Dividend =
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 =
Total cash dividend =
Total cash dividend = $193,463.
(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 =
Total cash dividend =
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 =
Total cash dividend =
Total cash dividend = $165,825
3. Dividend paid on October 15:
No. of shares issued and outstanding = 368,500
Stock Dividend = 5%
Stock Dividend =
Stock Dividend = 18,425 shares
Total value of Stock Dividend =
Total value of Stock Dividend = $460,625
Total Par Value of Stock Dividend =
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 =
Total cash dividend =
Total cash dividend = $193,463.
(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:
- Retained Earnings will reduce by cash dividend i.e. $471,788.
- 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.
- 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.
- The second effect of the dividend (cash or stock) is on the account through which they are paid.
- If cash dividend is paid then the second effect is on cash account as cash in the company decreases.
- 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,
- Retained earnings will decrease by Total Dividends Paid i.e $932,413.
- Balance in cash account will decrease by total cash dividends paid i.e. $471,788.
- Balance in common stock and additional paid in capital account will increase by Total Stock Dividend i.e. 460,625.
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