Question

Healthy Life Co. is an HMO for businesses in the Fresno area. The following account balances appear on Healthy Life’s balance sheet: Common stock (3,000,000 shares authorized; 2,200,000 shares issued), $15 par, $33,000,000; Paid-in capital in excess of par—common stock, $9,000,000; and Retained earnings, $89,550,000. The board of directors declared a 5% stock dividend when the market price of the stock was $18 a share. Healthy Life reported no income or loss for the current year.

For a compound transaction, if an amount box does not require an entry, leave it blank. If no entry is required, select "No entry required" from the dropdown.

a1. Journalize the entry to record the declaration of the dividend, capitalizing an amount equal to market value.

Stock Dividends_________
Stock Dividends Distributable__________
Paid-In Capital in Excess of Par-Common Stock___________
a2. Journalize the entry to record the issuance of the stock certificates.

Stock Dividends Distributable____________
Common Stock________

Answer 1

The journal entry for the declaration of the 5% stock dividend by Healthy Life Co. will include debiting stock dividends and crediting stock dividends distributable, and possibly paid-in capital in excess of par. For issuing the stock certificates, Stock Dividends Distributable is debited, and Common Stock is credited for the par value of the shares.

Step-by-step explanation:

The question involves journalizing stock dividend transactions for Healthy Life Co., an HMO. When Healthy Life's board of directors declared a 5% stock dividend, the total cost capitalized was based on the market price of the stock at the time of the dividend, which was $18 per share. The number of shares to be distributed as a dividend is 5% of 2,200,000, which equals 110,000 shares. The journal entry to record the declaration at market value would be a debit to Stock Dividends and a credit to Stock Dividends Distributable for the market price of the new shares, and perhaps an additional credit to Paid-In Capital in Excess of Par if the market price exceeds the par value.

To record the issuance of the stock certificates, Stock Dividends Distributable will be debited, and Common Stock will be credited for the par value of the shares issued. Any additional amount over the par value will again be credited to Paid-In Capital in Excess of Par.