Q29E_1 - Horngren'S Financial And Managerial Accounting

Question

Journalizing a stock dividend and reporting stockholders’ equity

The stockholders’ equity of Lakeside Occupational Therapy, Inc. on December 31, 2017, follows:

Common Stock—\(1 Par Value; 1,200 shares

 authorized, 400 shares issued and outstanding

Paid-In Capital:

120,000

400

2,000

Retained Earnings

Total Stockholders’ Equity \) 122,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 1,600

Total Paid-In Capital

\(

On April 30, 2018, the market price of Lakeside’s common stock was \)16 per share and the company declared a 13% stock dividend. The stock was distributed on May 15.

Requirements

1. Journalize the declaration and distribution of the stock dividend.

Step-by-Step Solution

Answer

Stock dividend declared $832 out of which the Common stock dividend is $52 and paid-in excess of par is $780.

Step 1: Basic Introduction

$\begin{array}{rcl}\mathbf{RetainedEarnings}& \mathbf{=}& \mathbf{NumberofShares}\mathbf{\times }\mathbf{StockDividend}\mathbf{\times }\mathbf{MarketPricePerShare}\\ & \mathbf{=}& \mathbf{400}\mathbf{\times }\mathbf{13}\mathbf{\%}\mathbf{\times }\mathbf{\$}\mathbf{16}\\ & \mathbf{=}& \mathbf{\$}\mathbf{832}\\ & & \end{array}$

$\begin{array}{rcl}\mathbf{CommonStock}& \mathbf{=}& \mathbf{NumberofShares}\mathbf{\times }\mathbf{StockDividend}\mathbf{\times }\mathbf{ParValuePerShare}\\ & \mathbf{=}& \mathbf{400}\mathbf{\times }\mathbf{13}\mathbf{\%}\mathbf{\times }\mathbf{\$}\mathbf{1}\\ & \mathbf{=}& \mathbf{\$}\mathbf{52}\\ & & \end{array}$

Step 2: Journal entry of declaration and distribution of stock dividend

Date	Transaction	Debit	Credit
Apr 30, 2018	Retained Earnings	$832
	Common stock dividend		$52
	Paid-in capital in excess of par		$780
	To record dividend declared
May 15,2018	Common Stock dividend distribute	$52
	Common stock		$52
	To record dividend paid