Chapter 13, Problem 2GLP

To determine

Concept Introduction:

Journal entries are medium of recording a financial transaction which occurred during an accounting period. The declaration of cash dividends is recorded by debiting the retained earnings and crediting the cash dividend payable account and stock dividends is declared by debiting the retained earnings and crediting the stock dividend distributable account.

Requirement 1:

To Journalize:

The journal entries related to cash dividends and stock dividends.

Answer to Problem 2GLP

Date	Accounts	Debit	Credit
Jan. 5	Retained Earnings	$20,000
	Common Dividend Payable		$20,000
Apr. 5	Retained Earnings	$18,500
	Common Dividend Payable		$18,500
July 5	Retained Earnings	$18,500
	Common Dividend Payable		$18,500
July, 31	Retained Earnings	$88,800
	Common Stock Dividend Distributable		$29,600
	Paid In Capital in Excess of Par Value, Common Stock		$59,200
Aug. 14	Common Stock Dividend Distributable	$29,600
	Common Stock		$29,600
Oct. 5	Retained Earnings	$22,200
	Common Dividend Payable		$22,200

Explanation of Solution

Computations
Jan. 5	40,000 shares X $0.50 per share cash dividend = $20,000
Apr. 5	37,000 shares X $0.50 per share cash dividend = $18,500
July 5	37,000 shares X $0.50 per share cash dividend = $18,500
Oct. 5	44,400 shares X $0.50 per share cash dividend = $22,200

  $\begin{array}{l}StockDividend=OutstandingShares\left(Mar.20\right)\times 20\%\hfill \\ =37,000shares\times \frac{20}{100}\hfill \\ =7,400\hfill \end{array}$

To determine

Concept Introduction:

Outstanding shares are the shares held by the investors of the company. The number of outstanding shares is determined by deducting the number of treasury stock from the number of issued shares.

Requirement 2:

Compute the number of outstanding shares?

Answer to Problem 2GLP

The number of shares outstanding at December 31 is 44,400.

Explanation of Solution

Particulars	Number of Shares
Outstanding Shares as of January 1	40,000
Less: Treasury Stock (Mar. 20)	3,000
Outstanding Shares as of March 20	37,000
Add: 20% Stock Dividend	7,400
Number of Outstanding Shares as of December 31	44,400

To determine

Concept Introduction:

Net income is the difference between the revenues earned and expenses incurred during an accounting period.

Requirement 3:

Compute the amount of net income?

Answer to Problem 2GLP

The amount of net income during the year is $248,000.

Explanation of Solution

Particulars		Amount
Retained Earnings as of December 31		$400,000
Add: Total Amount of Cash Dividends Declared	79,200
Total Amount of Stock Dividend Declared	88,800	168,000
Subtotal		568,000
Less: Retained Earnings as of January 1		320,000
Net Income during the year		$248,000

To determine

Concept Introduction:

Retained Earnings is the amount of net income retained by the business organization.

Requirement 4:

Compute the amount of retained earnings to be capitalized as a result of the stock dividend?

Answer to Problem 2GLP

The amount of stock dividend capitalized is $88,800.

Explanation of Solution

Particulars	Number of Shares
Outstanding Shares as of January 1	40,000
Less: Treasury Stock (Mar. 20)	3,000
Outstanding Shares as of March 20	37,000

  $\begin{array}{l}StockDividend=OutstandingShares\left(Mar.20\right)\times 20\%\hfill \\ =37,000shares\times \frac{20}{100}\hfill \\ =7,400\hfill \end{array}$

Amount of Retained Earnings Capitalized

  $\begin{array}{l} =NumberofStockDividend\times MarketValue\\ \begin{array}{l}=7,400\times \$12pershare\hfill \\ =\$88,800\hfill \end{array}\end{array}$