CENGAGENOWV2 FOR HEINTZ/PARRY'S COLLEGE
CENGAGENOWV2 FOR HEINTZ/PARRY'S COLLEGE
22nd Edition
ISBN: 9781305669840
Author: Parry
Publisher: IACCENGAGE
bartleby

Videos

Textbook Question
Book Icon
Chapter 21, Problem 9SPB

CASH DIVIDENDS, STOCK DIVIDEND, AND STOCK SPLIT During the year ended December 31, 20--, Baggio Company completed the following transactions:

Apr. 15 Declared a semiannual dividend of $0.65 per share on preferred stock and $0.45 per share on common stock to shareholders of record on May 5, payable on May 10. Currently, 6,000 shares of $50 par preferred stock and 70,000 shares of $1 par common stock are outstanding.

May 10 Paid the cash dividends.

Oct. 15 Declared semiannual dividend of $0.65 per share on preferred stock and $0.45 per share on common stock to shareholders of record on November 5, payable on November 20.

Nov. 20 Paid the cash dividends.

22 Declared a 10% stock dividend to shareholders of record on December 8, distributable on December 16. Market value of the common stock was estimated at $15 per share.

Dec. 16 Issued certificates for common stock dividend. 20 Board of directors declared a two-for-one common stock split.

REQUIRED

Prepare journal entries for the transactions.

Expert Solution & Answer
Check Mark
To determine

Journalize the given transactions in the books of Company B.

Explanation of Solution

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

  • Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
  • Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

Journalize the given transactions in the books of Company B.

Transaction on April 15:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
20--    
April15Cash Dividends 35,400 
   Preferred Dividends Payable  3,900
   Common Dividends Payable   31,500
   (Record declaration of preferred  and common dividends)   

Table (1)

Description:

  • Cash Dividends is a contra-capital temporary account. This account decreases stockholders’ equity and is closed as the dividends are paid off. So, the account is debited.
  • Preferred Dividends Payable is a liability account. Since the liability to pay dividends increased, liability increased, and an increase in liability is credited.
  • Common Dividends Payable is a liability account. Since the liability to pay dividends increased, liability increased, and an increase in liability is credited.

Working Notes:

Compute amount of preferred dividends declared.

Dividend declared = Number of shares ×Dividend per share= 6,000 shares ×$0.65= $3,900 (1)

Compute amount of common dividends declared.

Dividend declared = Number of shares ×Dividend per share= 70,000 shares ×$0.45= $31,500 (2)

Transaction on May 10:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
20--    
May10Preferred Dividends Payable 3,900 
  Common Dividends Payable 31,500 
   Cash  35,400
   (Record payment of dividends)   

Table (2)

Description:

  • Preferred Dividends Payable is a liability account. Since the liability to pay dividends has been paid off, liability decreased, and a decrease in liability is debited.
  • Common Dividends Payable is a liability account. Since the liability to pay dividends has been paid off, liability decreased, and a decrease in liability is debited.
  • Cash is an asset account. The amount is decreased because cash is paid as dividends, and a decrease in assets should be credited.

Note: Refer to Equations (1) and (2) for the value and computation preferred and common dividends.

Transaction on October 15:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
20--    
October15Cash Dividends 35,400 
   Preferred Dividends Payable  3,900
   Common Dividends Payable   31,500
   (Record declaration of preferred  and common dividends)   

Table (3)

Description:

  • Cash Dividends is a contra-capital temporary account. This account decreases stockholders’ equity and is closed as the dividends are paid off. So, the account is debited.
  • Preferred Dividends Payable is a liability account. Since the liability to pay dividends increased, liability increased, and an increase in liability is credited.
  • Common Dividends Payable is a liability account. Since the liability to pay dividends increased, liability increased, and an increase in liability is credited.

Working Notes:

Compute amount of preferred dividends declared.

Dividend declared = Number of shares ×Dividend per share= 6,000 shares ×$0.65= $3,900 (3)

Compute amount of common dividends declared.

Dividend declared = Number of shares ×Dividend per share= 70,000 shares ×$0.45= $31,500 (4)

Transaction on November 20:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
20--    
November20Preferred Dividends Payable 3,900 
  Common Dividends Payable 31,500 
   Cash  35,400
   (Record payment of dividends)   

Table (4)

Description:

  • Preferred Dividends Payable is a liability account. Since the liability to pay dividends has been paid off, liability decreased, and a decrease in liability is debited.
  • Common Dividends Payable is a liability account. Since the liability to pay dividends has been paid off, liability decreased, and a decrease in liability is debited.
  • Cash is an asset account. The amount is decreased because cash is paid as dividends, and a decrease in assets should be credited.

Note: Refer to Equations (3) and (4) for the value and computation preferred and common dividends.

Transaction on November 22:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
20--    
November22Stock Dividends 105,000 
   Stock Dividends Distributable  7,000
   Paid-In Capital in Excess of Par–Common Stock  98,000
   (Record declaration of stock dividends)   

Table (5)

Description:

  • Stock Dividends is a contra-stockholders’ equity temporary account. This account decreases stockholders’ equity and is closed to Retained Earnings account as the common stock is issued. So, the account is debited.
  • Stock Dividends Distributable is a stockholders’ equity account. Since common stock is declared to be issued as stock dividends, at par value, equity value is increased. An increase in equity is credited.
  • Paid-In Capital in Excess of Par–Common Stock is a stockholders’ equity account. Since the stock is issued in excess of par value, equity value is increased. An increase in equity is credited.

Working Notes:

Compute the number of shares to be distributed as stock dividends.

Stock dividends shares = {Number of shares outstanding × Stock dividend percentage}= 70,000 shares × 10%= 7,000 shares (5)

Compute amount of stock dividends (Refer to Equation (5) for stock dividend shares value).

Stock dividends = Stock dividend shares × Market value per share= 7,000 shares × $15= $105,000 (6)

Compute the amount of stock dividends distributable (Refer to Equation (5) for stock dividend shares value).

Stock dividends distributable value} = Stock dividend shares × Par value of stock= 7,000 shares × $1= $7,000 (7)

Compute paid-in capital in excess of par-common stock (Refer to Equations (6) and (7) for stock dividends and stock dividends distributable value).

Paid-in capital = Stock dividends –Stock dividends distributable value= $105,000 – $7,000= $98,000

Transaction on December 16:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
20--    
December16Stock Dividends Distributable 7,000 
   Common Stock  7,000
   (Record issue of stock dividends in the form of common stock)   

Table (6)

Description:

  • Stock Dividends Distributable is a stockholders’ equity account. Since common stock is issued due to declaration of stock dividends, the value is transferred to common stock, the equity value is decreased. A decrease in equity is debited.
  • Common Stock is a stockholders’ equity account. Since common stock is issued, equity value is increased. An increase in equity is credited.

Note: Refer to Equation (7) for value and computation of stock dividends distributable value.

Transaction on December 20:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
20--    
December20Memorandum entry: Declared a 2-for-1 stock split. Issued 154,000 shares of $0.50 par common stock in exchange for 77,000 shares of $1 par common stock.   

Table (7)

Working Notes:

Compute the number of shares after stock split on December 20.

Total number of shares after stock-split} = (Total number of shares outstanding before stock split × Stock split)=((Number of shares outstanding+Number of stock dividend shares) × Stock split)(70,000+7,000)shares × 21= 154,000 shares

Compute the par value of shares after stock split.

Par value of shares after stock split = Par value before stock splitStock split rate$121=$1×12= $0.50

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Liability?
Solve this question financial accounting
Production Efficiency

Chapter 21 Solutions

CENGAGENOWV2 FOR HEINTZ/PARRY'S COLLEGE

Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Text book image
Corporate Financial Accounting
Accounting
ISBN:9781305653535
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Cengage Learning
Text book image
College Accounting, Chapters 1-27
Accounting
ISBN:9781337794756
Author:HEINTZ, James A.
Publisher:Cengage Learning,
Text book image
Accounting (Text Only)
Accounting
ISBN:9781285743615
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Cengage Learning
Text book image
College Accounting, Chapters 1-27 (New in Account...
Accounting
ISBN:9781305666160
Author:James A. Heintz, Robert W. Parry
Publisher:Cengage Learning
Text book image
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College
Text book image
Financial Accounting Intro Concepts Meth/Uses
Finance
ISBN:9781285595047
Author:Weil
Publisher:Cengage
Dividend explained; Author: The Finance Storyteller;https://www.youtube.com/watch?v=Wy7R-Gqfb6c;License: Standard Youtube License