Q29E_2 - 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.

2. Prepare the stockholders’ equity section of the balance sheet as of May 31, 2018. Assume Retained Earnings are $120,000 on April 30, 2018, before the stock dividend, and the only change made to Retained Earnings before preparing the balance sheet was closing the Stock Dividends account.

Step-by-Step Solution

Answer

Total Shareholder’s equity of the company on May 31, 2018, is $122,000

Step 1: Basic Introduction

Balance sheet is the report prepared by the company at the end accounting year to determine the financial position on a particular date.

Step 2: Partial Balance sheet

 

Partial Balance sheet May 31, 2018
Shareholder’s equity
Paid in capital
Common Stock—$1 Par Value; 1,200 shares authorized, 400 shares issued and outstanding($400+ $52)	$452
Paid- in excess of par($1,600+ $780)	$2,380
	$2,832
Retained Earnings ($120,000- $832)	$119,168
Total Shareholder’s equity	$122,000