Chapter 16, Problem 5P

Alert Company’s shareholders’ equity prior to any of the following events is as follows:

The company is considering the following alternative items:

1. 1. An 8% stock dividend on the common stock when it is selling for $30 per share.
2. 2. A 30% stock dividend on the common stock when it is selling for $32 per share.
3. 3. A special stock dividend to common shareholders consisting of 1 share of preferred stock for every 100 shares of common stock. The preferred stock and common stock are selling for $123 and $31 per share, respectively.
4. 4. A 2-for-1 stock split on the common stock, reducing the par value to $5 per share (assume the same date for declaration and issuance). The market price is $30 per share on the common stock.
5. 5. A property dividend to common shareholders consisting of 100 bonds issued by West Company. These bonds are carried on the Alert Company books as an available-for sale investment at a fair value of $48,000 (which is also its cost); it has a current value of $54,000.
6. 6. A cash dividend, consisting of a normal dividend and a liquidating dividend, on both the preferred and the common stock. The 10% preferred dividend includes a 2% liquidating dividend, and the $2.30 per share common dividend includes a $0.30 per share liquidating dividend (separate liquidating dividend contra accounts should be used).

   Required:

   For each of the preceding alternative items:

7. 1. Record (a) the journal entry at the date of declaration and (b) the journal entry at the date of issuance.
8. 2. Compute the balances in the shareholders’ equity accounts immediately after the issuance (any gains or losses are to be reflected in the retained earnings balance; ignore income taxes).