Question

On January 1, 2017, Frontier Corporation had $1,125,000 of common stock outstanding that was issued at par. It also had retained earnings of $750,000. The company issued 40,500 shares of common stock at par on July 1 and earned net income of $395,000 for the year.

Journalize the declaration of a 15% stock dividend on December 10, 2017, for the following independent assumptions.

(a) Par value is $10, and market price is $18.
(b) Par value is $5, and market price is $20.

Answer 1

a) See explanation

b) See explanation

Step-by-step explanation:

Requirement A

Dec 31, 2017 Debit Stock dividends $413,100

Credit Common Stock Dividends Distributable $229,500

Credit Paid-in-capital in excess of par value $183,600

Note: January 1, 2017 - Number of common stock outstanding =
`(Common Stock)/(Common stock par value)` =
`(1,125,000)/(10)`

Number of common stock outstanding = 112,500 shares

July 1, 2017 - share issuance = 40,500 shares

Total number of shares = 153,000 shares

Total number of Stock dividend (Declared on Dec. 10) = 153,000 x 15% = 22,950 shares

Stock dividend = number of stock dividend x market price per share

Stock dividend = 22,950 shares x $18 = $413,100

Common Stock Dividends Distributable = number of stock dividend x par value = 22,950 shares x $10 = $229,500

Paid-in-capital in excess of par value = number of stock dividend x (Market price - par value) = 22,950 shares x $(18 - 10) = $183,600

Requirement B

Dec 31, 2017 Debit Stock dividends $796,500

Credit Common Stock Dividends Distributable $199,125

Credit Paid-in-capital in excess of par value $597,375

Note: January 1, 2017 - Number of common stock outstanding =
`(Common Stock)/(Common stock par value)` =
`(1,125,000)/(5)`

Number of common stock outstanding = 225,000 shares

July 1, 2017 - share issuance = 40,500 shares

Total number of shares = 265,500 shares

Total number of Stock dividend (Declared on Dec. 10) = 265,500 x 15% = 39,825 shares

Stock dividend = number of stock dividend x market price per share

Stock dividend = 39,825 shares x $20 = $796,500

Common Stock Dividends Distributable = number of stock dividend x par value = 39,825 shares x $5 = $199,125

Paid-in-capital in excess of par value = number of stock dividend x (Market price - par value) = 39,825 shares x $(20 - 5) = $597,375